17 2. 

A3 



■mm^mmmmmmm^mmmm^mm 



8 



The STANDARD PRICE 
OF COTTON 



m. 




PRICE 



25 CENTS 



HENRY RAW1E 

1201 American Building 

Baltimore, Md. 



Copyright, 1912 

By HENRY RAWIE 

Baltimore, Md. 



£CI.A305903 



SCIENCE OF VALUE No. 12 

THE STANDARD PRICE 
OF COTTON 

By HENRY RAWIE 



" We know the truth when we see it, let skeptic and 
scoffer say what they choose. Foolish people ask you 
when you have spoken what they do not wish to hear, 
'How do you know it is truth, and not an error of your 
own ?' We know truth when we see it, from opinion, as 
we know -when we are awake that we are awake." 

-EMERSON, "THE OVERSOUL' 



Published by- 
George W. King Printing Co. 
Baltimore, Md. 



TABLE OF CONTENTS. 

Chapter I. Pa ge. 

The Gold Standard 5 

Chapter 1 1. 
The Standard Price of Capital 30 

Chapter III. 
The Origin of Capital 42 

Chapter IV. 
The Distribution of Capital 51 

Chapter V. 
The Failure of Reproduction 69 

Chapter VI. 
The Finance System 81 

Chapter VJLI. 
The Failure of Finance 91 

Chapter VIII. 
Remedies 102 



The Standard Price of Cotton. 



CHAPTER I. 
THE GOLD STANDARD. 

The reported discovery of new gold fields and the rush 
of an adventurous people to gain new fortune, with the 
excitement and adventure that follow, is perhaps the 
most interesting news in the daily history of the civilized 
world. 

Why should news from gold fields be more exciting and 
more interesting than similar news from cotton fields, or 
from new manufacturing territory? Gold must be ex- 
tracted from the soil and rocks by the most arduous 
human labor; much money is wasted and few succeed; 
but in new gold fields each one has an equal chance at 
the hazard of new fortune, which chance does not obtain 
in cotton or in manufacturing. 

Gold is said to be an exception in nature, and for this 
reason has been called the natural money metal, and it 
has been given a standard price above cost by law, which 
is denied to all other products. 

The price of gold does not fluctuate on account of the 
increase in the supply, because each ounce of the new sup- 
ply may be coined into twenty dollars, which buys the gold. 



6 The Standard Price of Cotton. 

The more gold produced, the more money is produced; 
each exactly balances the other at a standard price fixed 
by a law which allows the owner of gold to coin it into 
money at twenty dollars an ounce. 

Gold economists need to be asked about the law of 
supply and demand, which they assert is the cause of 
price and which the human law cannot change. 

If gold is able to buy itself at a fixed standard price 
with the mone}^ it produces, why may not cotton be given 
a similar standard price and buy itself with the money 
the value of cotton creates ? 

Supply and demand would operate with equal force if 
cotton had a standard price, and because prices do or do 
not fluctuate is no evidence in favor of or against supply 
and demand. 

Supply and demand is not the cause of price, but is 
price itself; when supply and demand operate at all, a 
price appears, and to say that supply and demand con- 
trols price is to argue in a circle and say that price con- 
trols price. 

The cause of price must be the cause of the difference 
between different prices for the same commodity, and 
must be the cause of different prices for different com- 
modities, and it is self-evident that supply and demand is 
not the cause of differences in prices, but is price itself. 

The coinage law which creates money from gold at a 
standard price does not change the fact that gold is 
produced from the soil like cotton and although gold has 



The Gold Standard. 7 

a fixed standard price, such price does not alter the risks 
or hazards of new production from new gold fields. 

The standard price for gold may only fix a limit to the 
number of paying mines, and leaves untouched vast oceans 
of gold that cannot be produced because the cost exceeds 
the standard price. 

Human law may establish a standard price for gold and 
make it profitable to mine gold in particular fields, but 
the human law cannot override the natural law, which 
equally fixes standard prices for all commodities and 
equally limits the fields to be worked. 

If coinage laws were repealed, gold would continue to 
have a standard price which might be higher than the 
price now fixed by coinage laws, but which price would 
then fluctuate for the same reason that other prices now 
fluctuate. 

When the price of cotton falls from a fourteen-cent 
level to a nine-cent level, the producer wants to know why 
he is selected to bear so heavy a burden and suffer alone 
such enormous loss. 

If gold can be maintained by law at a profitable stand- 
ard price by selling for the money it creates, may not 
cotton be given a profitable standard price, and sell 
equally for the money cotton itself creates? 

In gold fields the cost of production limits the supply 
to the standard price, the same as any other price limits 
the supply, but the difference between cotton and gold is 
that the price of cotton may fall to absolute cost in favor- 



8 The Standard Price op Cotton. 

able fields, while gold cannot fall below its highest cost 
of production. Gold does not depend upon coinage laws 
for a standard price, but depends upon coinage to prevent 
changes in its standard price. Commerce accommodates 
itself to this standard, and serious disaster would result 
if the price of gold was permitted to communicate its 
fluctuations in price to the value of money. If a stand- 
ard price for cotton is fixed by natural law, and if human 
interference with natural law causes the low price of 
cotton, may it not be true that stability in commerce 
demands a stable price for cotton, and fluctuations in the 
price of cotton are also communicated to the value of 
money? 

When the price of cotton falls to the cost of production, 
it does not do so because cotton is less valuable or less 
able to sustain more money in circulation, but the price 
falls because the outside market fails to supply the volume 
of money a higher price demands. 

When the price of cotton falls below a profitable stand- 
ard, it is falsely assumed that the public gets the benefit 
of the lower price, but the truth is apparent that a fall 
in price is immediately followed by planting less acres of 
cotton in order to restore the necessary price by giving 
the consumer less cotton. 

The continued restriction of the fields of production 
which follows declines in prices below a profitable stand- 
ard, demonstrates that nature seeks to maintain a stand- 
ard price at all hazard, although the people may starve 
from a failure of the supply on this account. 



The Gold Standard. 9 

This truth is conclusively demonstrated by the history 
of every extinct civilization, where poverty and idleness 
increased while fertile lands were abandoned; where cities 
became vacant ruins without tenants, and people lived in 
caves, and where commerce declined and money refused 
to circulate, although golden ornaments and golden coins 
were in great abundance among the few rich. 

Distribution depends upon the price of goods above 
cost, and commerce fails and all progress is at an end 
when the standard price" falls to cost and destroys the 
profit of industry. 

With cotton selling at fourteen cents a pound in 1910 
and fifteen cents in 1909, the years of profitable prices 
had extended the area of cultivation and extended the use 
of fertilizer in an effort to supply the world with more 
cotton. The encouragement of a profitable price resulted 
in an exceptional yield of fifteen million bales in the favor- 
able season of 1911, but this greater yield was not offset 
by a lower cost of supply, as is usually the case. 

Had fire, flood and earthquake visited a similar loss 
upon the population of the cotton territory, the sympathy 
of the entire world would have been aroused. 

But a low price of cotton is looked upon as a blessing to 
the consumer of fabrics, and the South is supposed to 
forcibly contribute this loss for the general welfare. 

The theory that a price of cotton below a profitable 
standard is a blessing to the consumer is without the 
shadow of a fact to sustain it, but, on the contrary, such 



10 The Standard Price of Cotton. 

a loss to the South visits an equal loss upon other mar- 
kets by the failure to consume other products on account 
of the low price of cotton. 

The total consuming power is fixed, not by cost of 
production, but by a standard price high enough above 
cost, so that the surplus from one class of laborers may 
sell for enough money to buy the surplus from other 
classes of labor. 

The fall in the price of cotton in 1911, from the fourteen- 
cent level of 1910 to a nine-cent level per pound, is a total 
loss of power to exchange a surplus of cotton for other 
goods, by destroying the power of the South to buy the 
other goods. 

It may be asserted that cotton could not be valurized 
and maintain a uniform price of fourteen or fifteen 
cents a pound on a gold basis, for the reason that success- 
ive inflations of currency from coining each crop into 
money would soon destroy the integrity of the financial 
system. 

Marketing annual crops requires an annual inflation of 
credit, on account of the well-known demands upon credit 
for crop-moving purposes, and if this inflation of credit 
may come newly into existence with each crop at a stand- 
ard price and be cancelled each year as the crop reaches 
the consumer, there can be no objection to securing a 
standard price for cotton at fifteen cents a pound if cotton 
itself coins the money for its own standard price and 
cancels the money when the crop reaches the consumer. 



The Gold Standard. 11 

Prices and Values. 

Writers upon the subject of prices and values have 
taken for granted, and accepted without question, the 
theory that value is intrinsic and is a part and quality of 
the commodity itself. 

There is absolutely no truth in the theory of intrinsic 
value ; there are no facts of any kind to support the absurd 
intrinsic proposition, and the truth is unquestionable that 
the value of anything is expressed by the money it will 
sell for. Because a product must be useful in order to be- 
come valuable the usefulness and the value of it have been 
confused, the writers forgetting that air, for example, 
may be infinitely useful, but without value, and that use- 
fulness and valuableness are not identical. Value in 
commerce has a meaning which the simplest intelligence 
need not mistake, a meaning familiar to any child who 
spends money for any object it may desire. 

There is but one correct theory of prices and but one 
correct explanation of them, and this correct explanation 
must be selected from a number of theories, which are 
partially correct, or which are wholly false. 

Two theories of prices may each be false and may differ 
radically from each other, and thereby provoke endless 
discussion, because each may prove the other wrong, 
while neither may advance the truth in a single par- 
ticular. 



12 The Standard Price op Cotton. 

A Standard Price. 

It is generally admitted that every commodity offered 
for sale in the retail market is sold at a standard price 
above cost for the reason that the lowest cost under the 
most favorable conditions would prevent all production 
and employment where conditions were less favorable. 

There is a variety of costs for different units of the 
same supply offered for sale, and a standard price must 
arise so that identical parts of the same thing will sell 
at the same price. 

If cost governed prices, the market would become irreg- 
ular and impossible; the first buyer would get the ad- 
vantage of the lowest cost and each succeeding buyer 
would pay a higher price for the same supply, and no 
margin of profit could arise. 

The writers who hold to the intrinsic theory of value 
claim that the level market price, above the various dif- 
ferences in cost, arises from the most costly installment 
of the supply, fixing the price for the total supply, which 
price allows a profit to arise on account of the intrinsic 
value of the product. Ricardo based his law of rent upon 
this fallacy, and claimed that the pressure from an in- 
creasing population forced poorer lands into use at 
greater costs of cultivation, and the standard price was 
determined by the cost of the supply from the poorest 
lands where the cheapest labor was employed, thus basing 
a high price upon the lowest possible wage for labor. 

This economic superstition has had a powerful influence 



The Gold Standard. 13 

in directing the literature of politics, and while it did 
not deserve a moment's serious consideration from intelli- 
gent men, it became the sink of iniquity in political 
economy by providing an excuse for every form of abom- 
inable oppression and poverty. 

The standard price is derived from the forces distrib- 
uting wealth, and does not arise from the forces of pro- 
duction, and since it is admitted that every commodity 
must necessarily acquire a standard price, the inquiry 
narrows down to the question of whether the standard is 
determined by natural law, so as to keep all commodities 
in equal relation to each other, or whether price is a 
haphazard condition of every chance market. 

Surplus Cotton. 

The world needs to know why a cotton crop of twelve 
million bales in 1910 sold for fourteen cents a pound and 
the fifteen million bale crop of 1911 may sell for only nine 
cents a pound. The selling price of cotton above cost 
represents the sum of money the cotton producer may 
spend as surplus, in buying surplus products from other 
fields. 

The average cost of cotton may be safely estimated at 
eight cents a pound, and the surplus will be fixed by the 
sum remaining after the cost has been deducted from the 
selling price. 

Thus the crop of twelve million bales, for example, at 
fourteen cents a pound, cost eight cents, leaving six cents 



14 The Standard Price of Cotton. 

a pound or six-fourteenths of twelve million bales surplus, 
a surplus of about five million bales. 

In 1910 the South gained in wealth by selling more 
than five million bales of surplus cotton at fourteen cents, 
or selling twelve million bales at six cents a pound profit, 
a total gain of three hundred and sixty million dollars. 

On the other hand, the greater crop of 1911, consisting 
of fifteen million bales, sold at a price which cut the 
surplus cotton to less than two million bales, and the 
South gained but one and two-third million bales at nine 
cents a pound, or seventy-five million dollars in 1911, as 
against a surplus of more than five million bales at four- 
teen cents a pound out of a twelve-million-bale crop in 
1910, or three hundred and sixty million dollars. 

This gain is only apparent because, when the selling 
price of cotton fails to rise to its natural standard price, 
the entire fall below the standard is a loss that will be 
equalized by an increase of debts. 

Thus, for example, if half the total labor in the South 
is engaged in producing cotton, and the other half of 
labor is building railroads, towns and cities and is em- 
ployed as school teachers, government servants and at 
other work, then the selling price of cotton must be 
double the cost, to pay all this labor. 

The reason why the standard price is exactly double 
the cost is to keep each commodity in equal relation by 
doubling the cost of each in the volume of money but to 
allow each product to attract its own proportion of the 
total demand. 



The Gold Standard. 15 

The South did not gain as much as it spent, when cot- 
ton sold at fourteen cents; if cotton cost eight cents, it 
should have had a standard price of sixteen cents. 

But what of competition if nature is to thus establish 
a standard price for every commodity? Is the claim 
made that nature abolishes competition when a standard 
price is established? Not at all; the standard price is 
secured by competition; but competition may be con- 
structive or destructive — constructive when it is lifting 
prices to the level of the standard, or when it is reducing 
higher prices to the standard; but competition becomes 
destructive when it is used to destroy goods and drive 
them from the market by reducing the price below the 
standard, thus intending to prevent or reduce the supply 
of them. 

Herbert Spencer long since discovered that competition 
was positive or relative; as a positive force it was de- 
structive and operated between parts of the same aggre- 
gate, using one part to destroy another. 

Thus when cotton cannot find a market at its standard 
price, it begins to suffer from positive competition by 
cotton combatting with cotton and destroying the surplus 
by destroying the price, and ending the combat by reduc- 
ing the area under cultivation. 

Kelative competition regulates prices by attraction — 
any price seeking to rise above its standard meets the 
attraction of other prices held to the standard, which 
would thereby become relatively cheaper, and any price 



16 The Standard Price op Cotton. 

rising above the standard will pull its price out of its true 
relation to other standard prices. 

Let us suppose, for example, that sugar sells at its 
standard or monopoly price. If this price seeks to rise 
above the general standard, or general monopoly level, all 
other prices related to sugar must also rise or they be- 
come relatively cheaper than sugar and will attract de- 
mand from sugar, and thus they hold its price to the level 
of the general standard. When cotton dropped suddenly 
from fourteen cents a pound in 1910 to nine cents a pound 
in 1911, there was no general decline in wealth over the 
entire civilized world, which might compel the South to 
bear its share of the general loss. While wealth is gener- 
ally increasing all over the world, there is no excuse or 
reason for declines in prices of goods, and cotton pro- 
ducers are entirely within their rights when they demand 
an explanation of the enormous loss in price of cotton 
which they alone are called upon to suffer and which dam- 
age is increased by the higher prices for other things they 
are forced to pay. 

The Natural Law of a Standard Price. 

The fact that nature seeks at all times to secure a 
standard price of twice the cost for all labor products, is 
so important, if true, as to demand the most sincere and 
careful consideration of every intelligent citizen. 

The price of cotton above cost is both cause and effect, 
and for this reason it is quite difficult to explain; the 



The Gold Standard. 17 

labor that is not engaged in producing cotton, but which 
must be paid from the money derived from the sale of 
cotton, makes the price above cost, but the money put 
into circulation by employing this labor, makes this money 
become the cause of the price above cost. 

The advance in price above cost is demanded in order to 
circulate the quantity of money necessary to employ the 
laborers who buy the surplus cotton, and this money is 
scattered broadcast when such labor has been employed. 

The standard price must include the wages of this 
secondary labor, so as to gather in the scattered money 
so that it may be used over again to employ secondary 
labor. 

It should be perfectly clear that the money paid out for 
labor and material to produce cotton, must be collected 
back when cotton is sold or cotton can not be produced. 
It should be equally clear that taxes, and the labor and 
material for all building purposes, for railways and roads 
and other services within the same territory, must also be 
collected back from the price of cotton above cost. 

There is a difference in collecting the cost of cotton 
and collecting the price above cost, because the cost of 
cotton is more readily secured in the open market than 
the addition of price above cost. 

The question then arises, why should the price of cotton 
hesitate in finding its true level, which includes the wages 
of all kinds of labor? 

The difference in collecting back the cost of cotton and 



18 The Standard Price of Cotton. 

the price above cost, is based upon the fact that the price 
above cost demands a temporary inflation of currency 
derived from the trade of surplus cotton with an equal 
surplus of other products. 

This inflation of currency is derived from credit, and 
this credit may be offset and cancelled by debt, and 
debts may arise when prices are normal and cancel 
the required volume of credit, and a low price year will 
follow a year of good prices, because the increase in debts 
has prevented the inflation of money demanded by a 
standard price. 

Trade in Surplus Goods. 

The trade of our surplus product for another is not 
as simple as it may at first appear, owing to the fact that 
the standard price requires the surplus to be coined into 
a quantity of new money equal to the price of the surplus. 

Nature exchanges cotton with pig iron, for example, 
by requiring each of them to exchange for something else 
in order to divide each of them into equal units, according 
to the rule that things which are equal to the same thing 
are equal to each other. 

In the North, for example, two apples may exchange for 
one orange, equalized by the fact that in the South two 
oranges will exchange for one apple. Before a surplus 
of apples can trade with a surplus of oranges, the ex- 
change must give rise to a standard of value, and apples 
must sell for twice their cost measured in oranges. 



The Gold Standard. 19 

But, to secure the profit from the price of each above 
cost, a rouudabout method is required in order to create 
the standard of value ; a unit of ten oranges, for example, 
must be selected to trade for twenty apples, which have 
then cost ten oranges; the twenty apples must then ex- 
change for forty oranges to be able to pay for the apples 
which consume ten oranges, leaving a remainder of 
thirty oranges costing twenty apples, and then a unit of 
ten oranges must again exchange for twenty apples to pay 
the cost and extract twenty oranges profit as the differ- 
ence between the cost and the selling price. 

Trading apples for oranges and trading oranges for 
apples, is an illustration of every trade, and such ex- 
changes are greatly simplified when the currency may be 
inflated so that each surplus may be coined into money at 
its trading price, and for this purpose a surplus currency 
is developed from bank deposits, which saves the bartering 
back and forth of one surplus for another to create a 
standard of value. 

Banking. 

A very slight examination of banking will prove that 
a great volume of credit is available for all purposes of 
trade by which wealth may coin itself into the required 
volume of money at its standard price. 

The total bank deposits are limited by natural laws to 
a sum about equal to five times the volume of primary 
money, and with three billion dollars of cash in circu- 



20 The Standard Price of Cotton. 

lation, bank credits reach their limit at fifteen billion 
dollars. 

Coining the surplus of every crop into credit money at 
a standard price is the very foundation of national 
wealth and is the source of civilization. 

The quantity of any product becoming surplus is not 
determined by the forces of production, and the surplus 
does not vary with the quantity produced, as would 
appear to be true without examination. 

The part of any particular product which becomes 
surplus is split off from the main supply by laws of dis- 
tribution, by laws which the consumer puts into action. 

The standard price is composed of two parts ; one part 
is the cost of labor directly engaged, and the other is 
composed of the price above cost and should equal the 
cost of secondary labor. 

The standard price separates the portion of any crop 
which is to become surplus from the whole crop by the 
proportion which the price above cost bears to the total 
price, and the smaller the crop and the higher the price 
above cost the greater will become the credit surplus. 

Thus, for example, in 1910 twelve million bales of 
cotton cost eight cents a pound and sold for six cents 
above cost, or for fourteen cents a pound ; hence the pro- 
portion of six-fourteenths of twelve million bales deter- 
mined that five million bales should become surplus and 
sell for fourteen cents a pound. 

In 1911, the crop was three million bales greater than 



The Gold Standard. 21 

in 1910, but the price of nine cents a pound was only one 
cent above cost, and this one cent price determined that 
the surplus derived from fifteen million bales should be 
less than two milion bales selling at nine cents, whereas 
the twelve million bales of cotton made five million bales 
surplus. 

Commodities and manufactured products succeed each 
other so rapidly, that a cash market is required for their 
benefit, which market in turn demands a quantity of 
money directly in proportion to the cash price. 

For the reason that a cash market demands a corre- 
sponding volume of money, any failure in coining the 
quantity of money is instantly compensated by a fall in 
price to equalize price with the lower quantity of money. 

All labor is not producing goods so quickly consumed, 
the price of which must respond so sensitively to the 
quantity of money, and as a result more time may be 
given a smaller volume of money circulating in the 
capital market by postponing cash payment. 

On account of the slower manner in which capital is 
consumed, cash is not required in the capital market and 
the circulation of credit may take longer time than cash 
and may thereby substitute a credit market with time 
payments for a cash market with cash payments. 

This difference in time in circulating different quanti- 
ties of money, divides the quantity of cash from the quan- 
tity of credit, and divides quick bank credits from the 



22 The Standard Price op Cotton. 

main body of credits, most of which have become extinct 
by being offset with irredeemable debts. 

Because a volume of credit may take more time to cir- 
culate than an equal volume of cash, there is given an 
opportunity to destroy the quick credit upon which 
a cash market demands. Instead of the volume of bank 
checks remaining active the volume of fixed debts gains 
upon the volume of quick credit until the money re- 
quired for standard prices cannot be set free, and prices 
fall in order to accommodate themselves to the money 
available. 

The reason that prices of commodities suffer from a 
failure in credit rather than prices of capital, is because 
commodities must be quickly sold and consumed to make 
room for new supplies, and therefore the price of them 
demands a corresponding volume of money which will 
circulate as rapidly as goods pass from producer to 
consumer. 

Capital, on the other hand, can postpone its cash market 
and sell on long time, and can maintain a standard price 
with a contracted volume of money by borrowing money, 
but when no more money may be borrowed the entire 
capital market will have been destroyed. 

Bank Statistics. 

The volume of cash in circulation in any community is 
always twice as great as the cost of production demands, 
but as bank deposits grow, this volume of outstanding 



The Gold Standard. 23 

cash is contracted to become a reserve in banks, and as 
the outside volume contracts, the circulation of bank 
checks must replace it. 

For this reason, a part of the price of goods must de- 
pend upon a volume of credit money, and only the cost of 
goods can be collected in cash. 

When goods are selling at retail for twice their cost, 
bank deposits increase very rapidly, the profit from one 
crop piling on top of the profit of another, but banking 
cannot expand credit indefinitely, and when deposits 
reach their limit the further increase in bank credit is 
cut off automatically. 

Experience in banking has demonstrated that one dol- 
lar set aside as cash reserve, will protect ten dollars of 
deposits and make them payable in cash on demand. 

The function of banks is to build up deposits and con- 
tract as much of the cash to the reserve as the demands 
of business will permit, and when half the cash has 
become a reserve the limit in volume of currency of all 
kinds has been reached. 

There can be no disputing the fact that nature has been 
extremely liberal in providing an ample quantity of money 
to sustain standard prices. 

It is evident to any one acquainted with banking, that 
a tremendous volume of bank checks are being issued and 
cancelled daily, and it should be equally clear that 
gains and losses in the distribution of wealth are closely 



24 The Standard Price of Cotton. 

associated with this daily expansion and contraction of 
the currency. 

If this process of inflating and contracting bank credit 
becomes merely the cancelling of old debts and instituting 
new ones, instead of being a change from distributing 
wealth to new owners, then the benefits of this great 
circulation of currency may be lost. 

This fact will become clearer upon a survey of banking 
statistics; in September, 1910, the total banking power 
in the United States was given as follows : 

1,700 Savings Banks Deposits, 3,700 Million Dollars; 
Cash Reserve, 150 Million Dollars. 

1,000 Loan and Trust Companies: Deposits, 3,000 Mil- 
lion Dollars ; Cash Reserve, 300 Million Dollars. 

7,000 National Banks Deposits, 5,500 Million Dollars; 
Cash Reserve, 700 Million Dollars. 

12,000 State Banks: Deposits, 3,000 Million Dollars; 
Cash Reserve, 300 Million Dollars. 

900 Private Banks: Deposits, 300 Million Dollars; Cash 
Reserve, 30 Million Dollars. 

Total 22,600 Banks; Total Deposits, 15,500 Million; 
Cash Reserve, 1,480 Million Dollars. 

The total cash reserve held by 22,600 banking institu- 
tions to cover more than fifteen billion dollars of deposits, 
was a little less than ten per cent, of total deposits. 

Fifteen billion dollars of bank deposits are presumably 



The Gold Standard. 25 

payable in cash on demand and should supply every com- 
munity with a flexible and ample volume of money not 
only sufficient to maintain a cash market for commodities 
at standard prices, but to support a cash market also for 
all other wealth at the same standard. 

The enormous volume of bank deposits should allow 
labor to sell its services for their value in money on 
demand, and allow all accumulations of labor in forms 
of wealth to sell for their value in money on demand. 
The presumption that bank deposits are payable in cash 
on demand is a vain presumption, and only about ten 
per cent, of deposits are so payable, and toe circulation of 
credit is limited accordingly. 

The flexibility of bank deposits depends upon the loan 
account, and unless loans are payable in cash on demand, 
the deposit account has but little more elasticity than the 
loan account. 

Instead of bank deposits represeuting a credit currency 
of fifteen billion dollars, this sum is contracted by the 
loans which cannot be paid. 

This estimate of only ten per cent, of bank deposits 
being available as currency, will be disputed upon the 
theory that clearing exchanges tell a different story, and 
for the year ending September 10th, 1910, the exchanges 
between banks averaged five hundred million dollars a 
day, while the earnings of labor were but fifty million 
dollars a day. 

Bank clearings represent a mass of transactions which 



1& The Standard Trice op Cotton. 

have no vital connection with industry and commerce, and 
when the clouds of speculation are cleared from the finan- 
cial sky, it is discovered that only five per cent, of such 
clearings represent changes in bank deposits. 

It is foolish to assert that because the entire cotton 
crop, for example, is bought and sold once a month on 
cotton exchanges, with bank credit, that such activity has 
any influence on the vital cotton market or that it assists 
in the circulation of money upon which the standard 
price of cotton depends. 

The Union Pacific Railway is bought and sold once a 
week on an active stock exchange, and to assert that such 
sales represent actual business, is to claim that the profits 
of merchants and laborers are thereby seeking investment 
and are seeking spending money by selling investments. 

The vital currency problem is connected with that por- 
tion of fifteen billion dollars of bank deposits, which is 
being constantly renewed in the general markets by the 
consumption and distribution of wealth among the masses 
of the people. 

Out of a total of fifteen billion dollars of bank currency 
twelve billions are effectually retired from circulation, 
by being offset with permanent bank loans. 

This estimate may be conclusively demonstrated when 
a decline of deposits threatens the stability of the entire 
banking system. When bank deposits begin to fall the 
acid test of flexibility is being rigorously applied, for 
then the volume of credit which the banks may actually 



The Gold Standard. 27 

provide, is disclosed by the ease or difficulty with which 
the cash reserve may be used to entirely liquidate the 
deposit account. 

As soon as deposits decline five per cent., each bank 
begins to call in its liquid assets, and another decline 
of five per cent., spreading uniformly, would destroy the 
entire banking function of society under present con- 
ditions, because there are no liquid assets except the cash 
reserve. 

Instead of bank deposits circulating in natural chan- 
nels, and being subject to wide fluctuations in volume, 
they have become instruments of debt; deposits are tied 
up by investments instead of being free to circulate as 
currency. 

If bank deposits were protected by liquid assets, the 
destructive competition made necessary by a failure to 
secure standard prices could not arise, and panics and 
hard times would be impossible. 

The progress of the country demands a variation of 
twenty-five or more per cent, in bank deposits, and if 
banks are strained to the point of rupture when deposits 
decline ten per cent, then the solution of the banking 
problem does not lie in a direction which will increase the 
power of bankers to further expand and solidify the liquid 
credit of the country. 

Banking runs along smoothly while credit is being 
inflated, as any currency system is stimulated by inflation, 
but the moment inflation is checked and deposits begin to 



28 The Standard Price op Cotton. 

decline, then the weakness of our financial system is dis- 
closed and it demonstrates that the fault lies in the fail- 
ure of capital to become payable in cash on demand, and 
thereby maintain equal time in the circulation of cash and 
the circulation credit payable in cash. 

Bank deposits fail to supply an elastic currency because 
the assets of a bank are not elastic, and assets cannot 
become elastic until securities are made payable in cash 
on demand by creating reserves for this purpose. 

What benefit does the country derive from permitting 
banks to contract half the cash into their vaults as a 
reserve, if they cannot furnish a volume of credit greater 
than the cash they take from circulation ? 

The failure to liquidate loans when called upon is 
always a failure to sell the security at a standard price, 
and this hardening of deposits, does its greatest damage 
in taking ten or more billion dollars from active outside 
circulation, and thereby destroys the market for capital, 
and prevents the distribution of wealth to labor. 

The cotton market as well as the entire commodity 
market is necessarily a cash market, and when half the 
cash has become bank reserves one half of commodity 
prices must depend upon credit currency replacing the 
cash held in bank reserves. 

When debts arise they do so by lengthening the time 
in which a contracted volume of money circulates by 
allowing sales to be made on time payments instead of 
cash payments, and debt grows by what it feeds upon ; it 



The Gold Standard. 29 

forces capital which cannot be sold to borrow the money 
instead of coining the sum required for a cash market. 

Debts harden bank assets, and change them from the 
quick to the dead, and this contraction of credit invades 
the cash commodity market and commodity prices decline 
so as to equalize them with the volume of money in the 
cash circulation. 

Cotton does not stand alone, as it is supposed to do, 
depending upon its intrinsic value, but, on the contrary, 
its price is intimately connected with bank deposits pay- 
able in cash on demand. 

The financial power of Wall Street and New York City, 
is based upon the fact that it contains the only cash mar- 
ket for capital in the United States, and although this 
cash market is an artificial one, and draws liquid credit 
from all over the country to one insignificant center, and 
although this cash market fails miserably when it is most 
badly needed, and it inflicts enormous losses upon inno- 
cent investors, yet it has become of vital importance to 
general business, because it is the only source of consider- 
able quantities of liquid credit in the country. 



CHAPTER II. 
THE STANDARD PRICE OF CAPITAL. 

If the facts concerning a standard price for cotton have 
been hard to understand, a standard price for capital will 
prove no less difficult. 

Cotton has a relatively fixed supply which is produced 
and consumed by labor annually, and cotton demands a 
cash market and a volume of currency that counterbal- 
ances its cash price. 

Capital consists of a large and unconsumed surplus 
which has no fixed cost of supply, its price is based upon 
its net earnings, and is derived in some strange manner 
from present or from prospective wages of labor. 

Labor is compelled to furnish new capital without being 
paid for it, and is required to wait for its pay until capital 
seeks to be reproduced in seeking to sell for its value in 
money. Remember this fact in the beginning, that the 
reproduction of capital is the reproduction of the money 
represented by its price. 

The capital of the country, its railroads, factories and 
other property, is not consumed like other commodities, 
but its value is consumed by being earned and spent. 

The value of capital is too great to be distributed to 
laborers like commodities are distributed, and, as a re- 



The Standard Price op Capital. 31 

suit, the distribution of wealth in the form of capital, 
depends upon a third form of money called securities, 
which act as carriers and distributors of the price of 
capital, the same as goods carry value, and such securities 
have the power of inflating the currency so that wages 
may increase and enable labor to buy and sell securities 
in the same way commodities are bought and sold. 

The increase in quantity of money, which should enable 
laborers to buy the securities of capital, must come from 
the increase in bank deposits above the volume of deposits 
required in the commodity market. 

There is on hand ten or twelve billion dollars of bank 
deposits which should be in constant circulation buying 
and selling one hundred billion dollars' worth of capital 
in a cash market within a given time, the same as three 
billions of cash is in constant circulation buying and sell- 
ing fifteen or more billion dollars' worth of goods each 
year. 

The condition absolutely necessary to the circulation 
of secondary bank deposits, is a cash market at a fixed 
standard price for capital, which price and market must 
be secured by each corporation for its own capital from 
a reserve it should maintain for that purpose, in the same 
manner as banks maintain a reserve to keep depositors' 
accounts at standard prices and on a cash basis. 

With one hundred billion dollars' worth of securities 
selling at par on demand, and convertible into ten billion 
dollars of bank deposits, created for that purpose, the 



32 The Standard Price of Cotton. 

bank deposits could change into securities and back again 
— from securities into deposits — as often as the owners of 
wealth would change with the new generations coming 
upon the stage, and with each of them acquiring their 
share in the total wealth from the circulation of a great 
volume of money, which embraces the total wealth. 

In order to earn and consume the value of capital, ten 
or more billion dollars of dead bank deposits must be 
made quick deposits, and be made to circulate in the wage 
fund two or more times each year, in addition to the 
present wage fund. To secure this resurrection of ten 
billion dollars of dead credit, a cash market is required for 
one hundred billion dollars' worth of securities, which 
market demands that each corporation treat its own 
securities as deposits in banks are treated, and securities 
must be made redeemable in cash at par and interest on 
demand. 

It sounds very well to promise an addition of one hun- 
dred billion dollars' worth of business to the active cash 
market, by which the ownership of wealth will be con- 
stantly redistributed to the rising generations, instead of 
being controlled by ancestors. 

This is the kind of talk, it may be remarked, that 
"listens good," but how may it be made good, how can the 
mortuary assets of a bank be turned into a living circu- 
lation among laborers? 

The process by which capital must be reproduced and 
consumed does not differ in principle from the process 



The Standard Price op Capital. 33 

by which goods are reproduced and consumed; each de- 
pends upon the circulation of a volume of money great 
enough in quantity to establish standard prices of twice 
the cost price. When it is claimed that the standard price 
of cotton is twice the cost, it does not mean that different 
costs of cotton are doubled in the standard price, but it 
means that the entire cost of the cotton crop is doubled in 
the selling price by doubling the volume of money in the 
hands of consumers; this inflation of money once in the 
hands of consumers, does not spread uniformly, and 
cannot possibly do so. Where the quantity of any com- 
modity is not great, it may sell at five times its cost from 
a shading of the standard price of any great crop like 
cotton. 

Thus when the standard price of capital is fixed by 
natural law at twice its cost, this price is not to be under- 
stood to double all costs of capital alike, some capital 
may sell at five times its cost, while other capital can 
only sell at cost, or below cost. 

This relation between cost and selling price of capital, 
must be fixed the same as the relation between cost and 
selling price of goods ; that is to say, the total volume of 
money outstanding is inflated by doubling the total cost, 
but each form of goods or capital is free to attract as 
much of this money by demand as it can secure, and this 
mobility in the circulation of money determines the lines 
of progress. 

For example, if a new line of commodities is intro- 
duced, then a volume of money equal to double the cost 



34 The Standard Price of Cotton. 

should be added to the circulation, but this new line 
of goods may attract a volume to itself which will en- 
able it to sell at five or ten times its cost, thus indi- 
cating a new direction for production, and at the same 
time reducing the price of something else that is going 
out of existence. 

With capital the same rule applies, and its securities 
represent new lines like new goods, and although the cost 
price at which securities are sold must be fixed, yet the 
expansion in the selling price of capital is kept in line 
with progress, by allowing each corporation to issue its 
own securities without regard to the cost of its plant, and 
to demand no other limit than that the issuing corpo- 
ration shall be able to redeem them on demand at par and 
interest. 

The Circulation of Money. 

In discussing the movements of money it would be well 
if it could be simply explained that prices above cost are 
like weights lifted above the earth, which fall to earth the 
moment the sustaining power is released. 

Money circulates by an attraction like the attraction 
of gravity, wherein the difference in prices above cost 
attracts different volumes of money because money has 
no such difference of its own. 

A commodity may and does advance in price, while 
money remains at a dead level of value, but money may 
secure an increase of its units by its ability to move and 
attract the difference in price which commodities carry 



The Standard Price of Capital. 35 

above cost. Money will circulate or will not circulate, on 
account of the fact that its own value is the most de- 
sirable value in existence, and other things being equal, 
anyone will prefer the value of money to the value of any- 
thing else. 

Having money, one has value which is not contained 
in any form of commodity or security, and which is there- 
fore able to move and exchange for any commodity or 
security, and change back into money again, to buy at one 
level of prices and sell at a higher level. 

Having value in its most desirable form by having 
money, the question arises, what will induce a man to part 
with money for something less desirable, and the answer 
is that he will only do so in order to get more money by 
the process. When nature fixes a standard price at 
twice the cost, the distribution of money to individuals 
will depend upon gaining the difference between the cost 
price and the selling price. When a man with money 
discovers he may buy at one price and sell at a higher 
price, the human motive is introduced to help secure the 
natural order of civilization, and man unconsciously be- 
comes the instrument of intelligent action in the design 
of Nature. 

The standard price for commodities regulates the vol- 
ume of money by which they are distributed, and in order 
to gain wealth the owners of money must buy at cost and 
sell above cost. 

Attracted by gains in price, money will circulate to the 



36 The Standard Price of Cotton. 

limit of the ability of labor to produce anything which 
may be sold for more than it cost, and the check to this 
circulation comes from a fall in price. 

It is probably clear to the reader that the distribution 
of capital depends upon the awakening to life and circu- 
lation of ten or more billion dollars of dormant bank 
deposits, but that such bank deposits are intimately con- 
nected with the standard price of capital, requires further 
explanation. 

The capital of a bank in not contained in goods or raw 
material or spent for labor like other capital, but it con- 
sists of credit for which there is an insatiable demand. 

For this reason when a bank has loaned its cash capital, 
the same money is returned without cost to the banker to 
be loaned over and over again until the capital of the 
bank has been loaned five times, and is collecting interest 
from five times its capital instead of one time. 

The profits of banking will be held by competition to 
the general level of all profits, and by multiplying the 
number of times a bank loans its capital, the rate of 
interest on money is reduced to half the rate of profit 
upon capital. 

The rate of interest on money determines the cost price 
of capital, and double this rate creates the standard price 
for capital at twice its cost price, thus connecting prices 
of capital with deposits of banks. 

The current theories of capital which seek to explain 
its origin and growth, are so far from the truth, and are 



The Standard Price of Capital. 37 

so contrary to common sense, that it becomes difficult to 
treat them with respect, and it is impossible to treat them 
with the contempt they deserve. 

Public prints and economic writings abound with ad- 
vice to laborers to save money, so as to supply the world 
with the capital it requires; because one man may gain 
money by refraining from spending money, it is assumed 
that capital accumulates in the same way. 

If each person spent but ten cents per day, and deposited 
a dollar a day in a savings bank, the market for goods 
would fall to the ten cent level, and there would be no 
need for the deposits of banks, because there would be 
no market in which they could be put to use. 

It is true that one should not live beyond his means, and 
it is also true that he cannot do so unless he lives at some- 
body's loss and expense. 

The advice to live within means is almost entirely con- 
fined to laborers, who are expected to perform miracles 
wHen spending beggarly wages. 

Living beyond one's resourses is living at some one's 
expense by contracting debts, and by spending the money 
some one else earns who is never permitted to spend it, 
and who is therefore cautioned about how he spends the 
remainder after the major portion of his money has 
been borrowed and spent by the so called capitalists and 
great captains of industry and commerce. 

If living upon the proceeds of debt is to be made the 
issue of economy, then indeed may the capitalist draw in 



38 The Standard Price op Cotton. 

the horns of conceit, for aside from the profit he derives 
from imposing debt and slavery upon labor, he can accu- 
mulate but little money from any service he may render 
humanity. 

The rich are not asked to save and economize in order 
to accumulate capital — such advice is confined to labor, 
because it is self evident that capital originates with 
labor — but, on the contrary the rich are encouraged to 
spend money lavishly in order to return the money to 
circulation they have taken without giving. 

More dishonest than the advice to labor to save money, 
and advice to the rich to spend it lavishly, is the apology 
for debt, based upon the theory that future generations 
can be made to pay for the wealth we now create and 
enjoy. If posterity can be made to pay for any of our 
present wealth, they can be made to pay for all of it, and 
we may as well cease working altogether. But we are 
also the posterity of our ancestors who would long since 
have taken full advantage of the opportunity to saddle 
upon us the cost of their own luxurious living had they 
been able to do so. 

The truth is we fool no one but ourselves with debts 
which we promise to pay in the future, for this future 
payment is the vain pretense that promises a fool's para- 
dise. 

If our finance system demands the circulation of a 
quantity of money great enough to allow capital to sell 
for cash on demand, and labor to sell for its value in 



The Standard Price op Capital. 39 

money on demand, will not such a market require an 
enormous expansion in the volume of primary money? 

An inflation in the volume of cash could not replace the 
flexible circulation of credit, because no more cash can get 
into circulation than the cost price of commodities will 
permit. 

The total circulation of currency should naturally be 

divided as follows: 

• 

Three billion dollars in cash, one half of which has 
become bank reserve, leaving one and one-half billion dol- 
lars of cash in actual circulation. 

Three billion dollars of bank checks replacing the one 
and one-half billion cash, requiring a greater volume 
because of the slower speed in credit circulation. 

Twelve billion of reserve deposits intended to supply 
any deficiency in commodity markets, and to supply a 
volume of money to buy and sell one hundred billion dol- 
lars' worth of capital as often as labor may reproduce it. 

Any failure on the part of labor to share in the circu- 
lation of twelve billion dollars of bank deposits, is a 
failure to create a cash market for capital. 

It is not for nothing that nature has developed an auto- 
matic process of expanding the currency by allowing the 
volume of cash to produce a surplus of bank deposits 
five times as great. In the total of fifteen billion dollars 
of bank deposits will be found the volume of currency the 
laws of nature supply for the distribution of wealth, and 



40 The Standard Price of Cotton. 

a volume sufficient to permit capital to sell at twice its 
cost and sell for its value in money on demand. 

The volume of money furnished by nature to secure a 
just distribution of wealth has never been permitted to 
circulate at any period in the history of civilization, be- 
cause debts developed with the first appearance of wealth, 
and prevented the circulation of capital money by destroy- 
ing the selling price of capital above cost. 

Private Property. 

Private property is acquired by purchase in the open 
market, where everyone is supposed to have an equal 
chance to buy, and where money is supposed to accu- 
mulate only to men who perform useful service for 
the people. The failure to solve social problems is a fail- 
ure to distinguish between buying for cash and buying 
by creating a debt which promises to pay in the future. 
When fixed debts are examined, the question arises as to 
who actually supplies the money or credit which the debt 
absorbs, and who will be required to furnish the money 
if the debt is paid. 

When debts of a particular kind deprive the public of 
the benefits of a cash market, and of the benefits of the 
volume of money such a market requires, then debt in- 
vades the rights of the public and ceases to become a mere 
personal contract. 

Nature did not abandon man when he became a member 
of organized society, and natural law was not set aside 



The Standard Price op Capital. 41 

to make room for legislative enactments. The natural 
law which protects labor from accumulated wealth re- 
quires all wealth to be bought for money in a cash market, 
and requires the quantity of money shall increase as 
wealth increases. 

If wealth is not distributed to laborers as rapidly as 
labor can earn an increased volume of money equal to the 
increase of wealth, it will be distributed to the men who 
can supply money from a restricted volume by borrow- 
ing it. 

The fact which stands out clearly and the fact which 
defies contradiction is this; that money brought into cir- 
culation by increasing the debts of capital must fail to 
circulate when the limit in debt is reached, after which 
time no further distribution is possible except to credi- 
tors, and the money in circulation will be limited to the 
lowest possible wages of the laborers who can find em- 
ployment as slaves. 

The world has been fooled in its estimate of the import- 
ance of the capitalist and banker, because credit may 
inflate the volume of money, and because unearned wealth 
may be secured from such inflation by buying at cost and 
selling at a standard price. 

When money fails to circulate naturally it may be 
forced into circulation by borrowing bank credits, but 
such borrowed money can only continue as long as it 
takes labor to redeem and cancel credits with cash in the 
retail market. 



CHAPTER III. 
THE ORIGIN OF CAPITAL. 

If the value of capital is not intrinsic and if it is not 
based upon its labor cost, and if its price depends wholly 
upon a rate of profit derived from the annual sale of 
goods, how may capital circulate the volume of money 
with which it is bought and sold in harmony with the 
volume of money buying and selling goods? 

Capital consists of built up, or built in, commodities, 
which is an accumulation of past labor, and which greatly 
exceeds in quantity and value the power of present labor 
to reproduce. 

The fact that capital is derived from past labor, in con- 
trast to the fact that goods are the result of present 
labor, creates two distinct circulations of money; one 
quantity turns over in the cash commodity market with- 
in a given time, while an equal quantity may take more 
time to circulate in the capital market. 

Past labor has been consumed, and the money which 
buys and sells it must be money which passes through the 
hands of living laborers, or it must be money borrowed 
from the present circulation, with the promise to restore 
it in the future. 

If the living are to receive the benefits of civilization, 
they must be permitted to share in past accumulations, 



The Origin of Capital. 43 

and their only hope of doing so is in sharing in the greater 
volume of money which buys and sells all wealth in a cash 
market, and the natural law demands, therefore, that the 
quantity of money be increased to include all past labor, 
and in this way all past wealth becomes a part of present 
distribution. 

The difference in the origin of the price of goods, and 
in the origin of capital, may be illustrated as follows : 

A merchant accumulates ten thousand dollars profit 
from the sale of goods at standard prices, and he spends 
the profit in building a store at a favorable location. The 
store building may or may not be valuable ; its value will 
depend wholly upon the fact of whether or not it is so 
located as to increase profits from annual sales, and if 
profits add a thousand dollars a year to income, the 
building will sell for ten thousand dollars on a ten per 
cent, dividend basis, or for twenty thousand dollars on 
a dividend basis of five per cent. The labor which created 
the building is not taken into account at this time, be- 
cause, at this point in its history the building is a mere 
change in the form of the profits derived from goods; 
laborers must wait until the price of the building may be 
able to add a corresponding volume of money to the cir- 
culation, and then higher wages will create the only stable 
market in which to sell buildings, as well as it creates 
the market in which to sell goods. 

The building is a gift to the merchant from an ex- 
pansion of money, but such inflation is only a temporary 



44 The Standard Price of Cotton. 

expedient on the part of nature to gain time; the cur- 
rency must again be inflated by a standard price for 
buildings ^before labor may secure a return of profits in 
goods and before capital can be recovered by labor, the 
success or failure of one depending upon the success or 
failure of the other. 

Laborers do not receive goods as wages, but they are 
paid in money, and since primary labor keeps fifteen 
billion dollars in circulation each year to buy goods at 
standard prices, secondary labor is expected to keep an 
equal sum of fifteen billion dollars a year in circulation 
with which to buy capital at standard prices. 

It is this secondary sum which determines the price of 
capital, and capital depends upon its ability to attract 
money from this sum; the dividends capital derives from 
the sale of goods is the center round which capital crystal- 
lizes and attracts money from the secondary circulation. 

The one thousand dollars a year dividend which the 
merchant credits to the building does not furnish any 
money with which to buy it, and dividends do not increase 
the volume of money in circulation. 

Capital develops spontaneously from profits when it 
concentrates the sale of goods or the production of them 
to favorable locations ; the concentration creates greater or 
less profits at different points, and it is necessary to im- 
prove each location and increase the volume of business 
at such points so as to secure the dividends upon the 
capital required. 



The Origin of Capital. 45 

This fact is well illustrated by modern development 
where great manufacturing enterprises gather near a 
center favorable to supplies of coal and other raw ma- 
terial, and is again illustrated by the concentration of 
great retail stores in the central locations of cities, where 
the great volume sold will multiply the number of profits 
derived from the single unit, such locations permit great 
accumulation of capital to arise on account of saving 
labor time. The combination of a number of small and 
independent factories, with improved machinery, into a 
great industrial organism, and the combination of a num- 
ber of separate stores having different lines of goods into 
great department stores, does not, in itself, add a single 
dollar to the total wealth nor increase the volume of 
money paying wages. 

Modern concentration of capital, and the development 
of monopoly, is not, by itself, a wealth creating process, 
but is aggregating a definite and fixed number of profits 
into more compact space and into less wasteful processes, 
and the growth in size must not be mistaken for anything 
more than an accretion of fixed units into greater totals 
which does not increase the total wealth, and does not 
increase the total wages. 

The concentration to favorable locations may enable 
capital to greatly increase the output of goods, and the 
sales of them, but in order to do so there is forced upon 
capital the necessity of increasing its quanitity without 
a corresponding increase in its earnings, which are held 
firmly within limits fixed by the standard price of goods. 



46 The Standard Price op Cotton. 

Total profits are always held to a fixed sum by the law 
establishing a standard price, and this fixed sum can 
increase only by increasing the quantity of goods and 
wages of the consumers; it cannot supply capital with 
money ; on the contrary, the value of capital is itself tied 
down by the limit in sales of goods and by the fall in 
the rate of profit which accompanies the increase in 
quantity of capital. 

If a single corporation could, within a single state, 
combine all the elements of production and distribution 
it would thereby concentrate to itself every profit in in- 
dustry, and its capital would sell for a price depending 
upon the annual sales of goods. For example, if annual 
sales of goods were fifteen billion dollars at twice the 
cost, the profit would represent fifty per cent, for capital 
upon a selling price equal to the selling price of goods, 
and if capital could keep its cost down to a sum equal 
to the cost of goods, the annual profit on its capital 
would be the annual profit on its goods, no more, no less. 
But if the volume of capital must increase its rate of 
profit will decline as the quantity of capital multiplies the 
annual value of goods. 

Thus when the selling price of capital is equal to the 
annual price of goods, its rate of profit will be fifty per 
cent. 

When capital advances in value to twice the annual 
value of goods, its rate falls to 33 per cent, and the rate 
of interest follows and adjusts itself to half the rate of 



The Origin of Capital. 47 

profit. When the value of capital is three times the 
annual value of goods, its rate is twenty-five — four times 
the rate is twenty — and so continues, the value increasing 
while the rate of profit declines. 

The money with which capital may inflate the currency 
is readily and easily supplied by the facility with which a 
bank may expand its deposits to five times the volume of 
cash in circulation. 

Thus a bank, for example, finds it has ten thousand 
dollars of free cash on hand. 

A merchant secures a loan of ten thousand dollars and 
is given credit for a deposit of ten thousand, and one 
thousand dollars of the free cash is placed in reserve, 
reducing the loanable cash from ten to nine thousand 
dollars. 

A broker secures a loan of ten thousand dollars and is 
given an equal credit for a deposit, and a second thousand 
dollars is taken from the free cash and put to the reserve 
account. 

A builder is next to secure a loan of ten thousand dol- 
lars to erect buildings, and gets a deposit credit, and the 
reserve grows to three thousand, while the free cash con- 
tracts to seven thousand. 

A farmer borrows ten thousand dollars to buy cattle 
and market grain, and again the reserve grows to four, and 
the free cash declines to six thousand dollars. 

A promoter borrows ten thousand dollars to start a new 



48 The Standard Price of Cotton. 

industry and to begin manufacturing, and gets credit; an 
officer of the local government follows, who needs ten 
thousand dollars to anticipate taxes, and gets it. 

A merchant wants to discount bills and borrows ten 
thousand dollars in advance of his collections, and the 
inflation may continue until half the currency in circu- 
lation has become a bank reserve. 

Thus ten thousand in free cash may change to ten 
thousand dollars of cash in reserve and build up bank 
loans and deposits to one hundred thousand dollars. 

Looking at the easy expansion of credit from the inside 
of a bank and being unaware of any law defining limits 
to it, the banker quite naturally thinks there is no other 
limit than his particular ability in keeping his own 
accounts safe and flexible. Bankers find they soon reach 
the limit of their loan account, that no more free cash 
accumulates outside the required reserve, while the con- 
traction of credit by debts has intensified the demand for 
loans instead of the inflation having satiated such de- 
mands. 

Bankers, therefore, having notes and other securities 
which they consider good, but which they cannot liqui- 
date, seek another process by which they would use the 
notes as security and issue new money to create a new 
debt of their own; they would issue a new volume of 
spurious cash to be inflated or contracted at their own 
pleasure or profit, and they would build a second pyramid 
of bank debts to stand with its point upon the apex of 



The Origin op Capital* 49 

the pyramid of loans before contracted, and to tower four 
or five times higher than the first. 

The volume of cash in circulation furnishes the foun- 
dation for prices and creates a standard of value by limit- 
ing the quantity of cash to the cost of goods, but creates a 
new volume of bank credit five times the quantity of 
cash. 

The cash in circulation is multiplied by six to arrive 
at the limit to the annual sale of goods, and the annual 
sale of goods is again multiplied by six to arrive at the 
limit in the quantity of wealth. For illustration, take 
periods in our development from 1850 to 1910, and esti- 
mate the growth in wealth upon the aforesaid basis, as 
follows : 



CIRCULATION. 


GOODS. 


TOTAL 


CAPITAL. 


1850— 300 Millions X by 6 


= 1,800 Millions X by 6 


= 10,800 Million Dollars 


1860— 450 


2,700 


16,200 


K << 


1870— 700 


4,200 


25,200 


« « 


1880—1,000 


6,000 


36,000 


" " 


1890-1,500 


9,000 


54,000 


« u 


1900—2,000 


12,000 


72,000 


* " 


1910-3.000 " 


18,000 


108,000 


< .< 



The statistics of wealth given by the census returns 
may be compared with this illustration to verify the law 
of a standard of value, demonstrated by the growth in 
wealth. 

When the limit in circulation of money establishes a 
limit to the annual value of goods and to wealth in 
any decade, it does not imply an end to progress, but it 
does imply that progress must take new directions, and 



50 The Standard Price of Cotton. 

that society must invent new supplies and must put new 
industries into activity; must develop new natural re- 
sources and must change in a given upward direction: 
the limit is notice to leave the outgrown, to throw much 
wealth into the discard, and to get into line with progress. 



CHAPTER IV. 

THE DISTRIBUTION OF CAPITAL. 

Goods in great quantity and variety may be sold each 
year at standard prices and half the selling price may be 
entirely wasted, being spent for useless labor or for im- 
provements that endure for one year only. 

Surplus labor may be employed to create capital, but 
fires and floods may each year destroy as much as has 
been accumulated, and in either case labor would be fully 
employed, goods would have a ready market at standard 
prices, but wealth could not increase nor could civili- 
zation develop. 

In order to prevent a situation of this kind, a situation 
where civilization becomes stationary or where it turns 
upon a fixed axis in a settled groove, natural laws have 
been made to govern the distribution of wealth and to 
reward the individual who may cause capital to appear 
which will prevent waste and which will economize the 
most precious of all forces, namely, human labor. 

In the beginning of society, when savages were first 
gathered into tribes, each savage was provided with an 
easy savage existence from the bounty of nature, if he 
remained contented as a savage. 

Aspirations, coming from the connection of the savage 
with his tribe, change his contentment into a desire for 



52 The Standard Price of Cotton. 

progress, and however slow he advances in the beginning, 
he moves along a path determined for him by natural 
laws. 

It was not an easy task for nature to change savages 
into workmen whose ancestors for millions of years had 
hated work. The plan was a simple one, however, where 
every action, however small, when in the right direction, 
was followed swiftly by reward and where every action in 
a wrong direction was as swiftly punished. 

After a people are supplied with a quantity of goods, 
then variety develops in every line, in food, clothing, 
houses, worship, means of travel and communication, and 
new varieties call out new indulgences, and a new danger 
confronts the advancing civilization, a danger from which 
all nations so far have perished. 

The danger lay in the satisfaction of the mere animal 
appetites which are developed to the limit of human 
desire, both in quantity and in variety of supplies, a 
danger from surplus wealth, and from the slavery intro- 
duced to sustain the luxury and idleness of the privileged 
classes. 

Escape from this danger is provided by the natural law 
<*f secondary development, whereby capital intervenes 
and gives a new direction to the ambitions of men and 
insensibility increases the demand for labor and would 
free workmen from slavery, and at last secure the bless- 
ings and rewards of self-conscious creative work, a re- 
ward God has secured to Himself by creating the Objec- 
tive World. 



The Distribution of Capital. 53 

To prevent the waste of one half the labor, set free by 
the ability of the other half to supply the world with 
commodities, capital was given as a bonus, as a reward to 
the finder, like the discovery of gold, to the man who 
prevented the waste of labor. 

Nature does not develop particular human beings who 
are set apart to become money makers, while others 
remain hewers of wood, but leaves an open field in money 
making; any one may discover the treasures scattered 
along every path of progress. However great may be the 
differences in ability among individual men — however 
infinitely an inspired genius may tower above the average 
man, the acquisition of wealth is an exception, and as a 
rule gains in wealth have their origin in gifts from nature 
which are sought to be made perpetual by human legis- 
lation, One individual may be incomparably greater 
than another, as God is infinitely greater than a man, 
but the distinction which marks out particular men in all 
other respects fails absolutely when it seeks to apply to 
the acquisition of wealth, which is definitely limited to 
useful human service made active by the circulation of 
money. 

There is one rule only which governs man in making 
money, and that rule is to earn it by useful labor, and 
there is no exception to this law, and what one gets with- 
out earning another earns without getting. 

Differences in wealth arise from natural law in the 
beginning because wealth may be found and nature re- 
wards the finder, but the moment the finder would sell 



54 The Standard Price op Cotton. 

his wealth for its value in money, he encounters the law 
of labor, "to eat bread by the sweat of the brow." 

It is not claimed that the bounty of nature ceases when 
labor is required to earn money, but the claim is made 
that the bounty is diffused instead of being concentrated, 
and is divided among the multitude, as was illustrated 
by Christ with the loaves and fishes. 

Lines of Progress. 

There are two great streams in the progress of human- 
ity which check and counterbalance each other, and pre- 
vents either stream from becoming stagnant, and thereby 
arrest the onward flow of civilization. 

One stream is that of supply, of the production of an 
ever increasing quantity and variety of consumable goods, 
a stream which scatters population over the entire earth 
to seek a livelihood and to secure the greatest satisfaction 
with the least exertion. 

The other stream is that of demand, which gathers 
together the scattered products to the best locations, 
where they may be most easily consumed, which stream 
requires the development of fixed wealth and the concen- 
tration of population. 

When the desires of the people are simple, and when no 
opportunity has developed to secure a variety of products, 
they will scatter widely and be sparsely settled, so as to 
find room for their fields and flocks. 



The Distribution of Capital. 55 

But the diversity of nature in climate, in soil, in min- 
erals and metals, creates an ever increasing variety, and 
brings back the scattered population to centers of activ- 
ity, and concentrates them upon fertile lands near raw 
material, along water courses and harbors, upon easy lines 
of communication, so that different volumes and different 
kinds of supplies may move and exchange with the least 
resistance. 

The Rewards of Nature. 

The rewards given by nature to secure the develop- 
ment of civilization are double rewards, and although 
a standard price creates a bonus in favor of the trader, 
such a bonus cannot be secured unless capital is developed 
which takes up surplus labor and changes primary pro- 
ducers into consumers. 

If there was no capital in existence, and if the reader 
could imagine work to be carried on, each one for himself, 
each worker would be producing a very small part of the 
supply, and half of the time of each would be wasted in 
exchanging products in order to secure a share in the 
variety of them. 

The parable of the loaves and fishes comes into exist- 
ence when an inflation of currency is given away, the 
volume of which is equal to the money earned during the 
time used in creating and exchanging the supply, and 
this expansion in money from saving time gives to its time 
saving finder what appears to be unearned wealth, but 



*#$ 



56 The Standard Price of Cotton. 

the time saved, when received as inflated money, must be 
used to pay labor so as to make the inflated money 
valuable. 

A system where each small trade was carried on sepa- 
rately between millions of individuals could not help but 
demonstrate that the time wasted might become as valu- 
able as the time employed, and a gain of time from 
hundreds of millions of trades would become hundreds 
of millions of gains if trade could be concentrated and 
specialized to a few only of the millions of workers. 

Each part of any supply which a worker would trade 
becomes a surplus seeking an exchange with an equal 
surplus of a different kind, and will create the beginning 
of great markets and of great changes in supplies for 
which the markets will discover innumerable new outlets. 

Millions of trades will seek the profit to be gained, as 
was illustrated with two apples exchanging for one orange, 
equalized when two oranges trade for one apple, by which 
the differences in apples or oranges become profits. 

Each particular unit in hundreds of millions of units 
carries its own individual margin of profit, and when 
each unit trades with another at twice its cost, this mar- 
gin of profit becomes wealth to its finder. 

The effort to gather in millions of separate profits leads 
to an exciting rush, like that to new gold fields, to find 
the particular locations where the development of capital 
will permit the required saving of time in trading surplus 
goods. 



The Distribution of Capital. 57 

The theoretical limit to this gain is half the selling price 
as a profit; and in order to secure this profit, the volume 
of sales must increase to such an extent that after deduct- 
ing all cost half the gross sales will be profits. 

The most economical distribution possible for the entire 
output of industry is reached when in each case the gross 
sales are concentrated to favorable locations which per- 
mit the volume of gross sales to divide into two equal 
parts, half expense and half profit. 

A merchant, for example, will build a store building at 
a selected location where he may concentrate trade for 
the considerable variety of goods he expects to carry in 
stock, and his success will depend upon the relation he 
establishes between gross sales and expenses. 

As a rule, the beginning of concentration does not show 
a profit for a year or more, and the finder of a location 
must seek out lines of trade and regulate expenses to the 
volume of sales. In estimating the standard price at 
double the cost, it is to be understood that each element 
in the cost doubles until the consumer is reached, and, 
therefore, the expenses of the merchant do not impair the 
theoretical profits of half the gross sales. 

The labor employed by a merchant in increasing the 
sales of goods, or in delivering them to consumers, is a 
self-sustaining labor, which pays itself by its own work, 
and does so by adding its cost to prices and by such 
costs doubling in the standard price, and a merchant 
therefore may gain a profit on account of the labor he 



58 The Standard Trice of Cotton. 

employs in selling goods, for the same reason a manu- 
facturer gains a profit from labor he employs in produc- 
ing goods. 

What needs to be done by merchant or manufacturer is 
to select his location and his raw material so that his own 
expenses will not prevent the rise in volume of gross 
sales from which he secures his profits. 

A railway system supersedes the slower and more ex- 
pensive movement of goods by teams, whereby small units 
of transportation are sold at great expense, which gives 
way to a vast volume of transportation at small expense 
by the development of railways. 

A railway system is a good example because it sepa- 
rates its own service from all other costs, and its reward 
is easily discovered in the standard of value which permits 
it to sell transportation at twice its cost, and if it succeeds 
in increasing the volume of transportation to its most 
efficient level, its gross receipts will be half profit, to be 
credited to its capital account. 

In selling meat, for example, which has become one of 
the great industries where total sales of two firms are 
almost five hundred million dollars a year, the particular 
service is complicated by buying cattle, by manufacturing 
and by transportation, so that the profits of this industry 
cannot be definitely ascertained from its gross sales. 

The reward of capital does not end with its success in 
consolidating production and distribution to the most 



The Distribution of Capital. 59 

favorable locations, and in taking up surplus labor, but 
its reward only begins at this point. 

When capital succeeds in separating profits from the 
selling price of goods, the volume of profits each year will 
determine the price of capital, which then becomes fixed 
wealth and returns a fixed income. 

The annual profit establishes a standard of value for 
capital equal to twice its cost, because the cost of capital 
will be limited by the interest upon money, for which 
there is an insatiable demand ; the profit derived by banks 
in loaning money is double the interest rate, thus fixing 
the standard rate of profit at double the standard rate of 
interest, and allowing the standard price for capital to be 
twice its cost. j 

The quantity of money circulating in the capital market 
does not accumulate from the dividends it receives, which 
are wholly consumed, but the capital must originate its 
own money by the quantity that is bought at cost and sold 
above cost according to the same rule that a quantity 
of goods bought at cost and sold above cost circulates a 
given quantity of money within a given time. 

The annual dividend is the index around which a volume 
of capital crystallizes, the quantity being determined by 
the annual profit and by the rate. 

Assume, for example, that the annual sales of goods at 
standard prices equals fifteen billion dollars, one half of 
which may become profit provided the utmost success has 
been developed in handling the total output of goods. 



60 The Standard Price op Cotton. 

The quantity of capital required to secure this profit 
will continue to grow on account of the desire of the 
people to share in the income, and as the quantity grows, 
the fixed limit in sale of goods requires the same quantity 
of profits to spread over a constantly expanding surface 
of capital by reducing the rate. 

If the total capital, for example, need only equal the 
annual selling price of goods, the rate of profit is 50 
per cent.; as the quantity of capital increases to become 
two or more times the annual value of goods, the rate de- 
clines in exact proportion. 

VALUE OF CAPITAL. PROFIT. RATE. INTEREST. 

15 Billion Dollars— 1\ Billion— 50 Per Cent.— 25 Per Cent. 



30 


i 


<( 


— 7£ 


<< 


—331 


<< 


-16f " 


45 


t < 


< < 


— 7i 


< < 


—25 


44 


—121 


60 


1 


<< 


— U 


44 


—20 


a 


—10 


75 


i < 


< < 


—7* 


44 


-16! 


<< 


— 8i 


90 


" 


<< 


— 7* 


4 < 


— 14i 


<< 


- 7 T \ " 



Thus a fifteen billion dollar annual business will sup- 
port a volume of capital six times as great as the annual 
sales, or a value of ninety billion dollars, and at this 
point the rate for money falls to half the reduced profit, 
and the hazard in new business, on account of the low 
interest on money, sets a limit to the further increase of 
capital. 

Although an average rate of fourteen per cent, seems 
ample for capital and seven per cent, seems a high rate 
for money, yet the extension of credits at this rate is 
always followed by losses, because the theoretical rate is 



The Distribution op Capital. 61 

never realized in practice, and the actual rate will be 
lower. 

As the country is being settled, the best and most favor- 
able locations are first improved and occupied; the sites 
for cities and towns and railroads become fixed, and 
manufacturing will center where the known supplies of 
coal and other mineral and metal offer the greatest advan- 
tage. This absorbtion of capital in fixed development 
should also absorb all the available labor, and should in- 
crease the wage rate in proportion to the increase in 
wealth. New business therefore will be menaced by in- 
creasing costs from higher wages and from less favorable 
locations, and from poor deposits of natural resources of 
every description, in addition to a lower average rate of 
profit. 

The Reproduction of Capital. 

Assuming the volume of capital has reached its approxi- 
mate limit of one hundred billion dollars, the question 
arises as to what changes will occur in the ownership of 
capital. 

The total capital of one hundred billion dollars repre- 
sents a price of twice its cost and includes a profit of 
fifty billion dollars, by which its owners have been able 
to acquire wealth without work. This fat in the selling 
price is the reserve to be called upon to reproduce the 
given volume, so that capital may accommodate itself to 
the constant changes required by new development. 



62 The Standard Price op Cotton. 

The reproduction of capital, like the reproduction of 
goods, is the process by which it is distributed, and by 
which labor acquires its share of it. 

In the beginning of trade, and when a first settlement 
forms in a cleared forest on the banks of a river or lake, 
the first town is a one-story town, and is built of wood. 

This temporary one-story town is quickly replaced by 
a larger and better town of two stories, which in turn is 
again replaced by developing a combination of wood and 
other material in a new town three stories high. 

As the town grows to a city, the three-story development 
of brick or stone keeps expanding, and twenty-story build- 
ings of steel and fire-proof material point the way to the 
future, and the way of incessant change. 

As it is with towns of one story growing into twenty- 
story cities, so also it is with all other development, in 
trading, in transportation and in manufacturing; the 
modern one-story birth is followed by an expanding pro- 
duction at constantly diminishing costs and increasing 
wages. A one-story modern railroad must be superseded 
by the two-story railway, to change immediately to the 
three-story system of railroads, and in turn the three-story 
structure gives way to the coming railway kingdom of the 
twenty-story class. 

The increase in the growth of capital, followed by 
higher wages and lower dividends, makes for a more com- 
plete economy in the use of labor and for an enlarging 
distribution of wealth to the masses of the people. 



The Distribution of Capital. 63 

The limit in the power of labor to reproduce capital is 
a limit fixed by the selling price of goods, the sale of 
goods should create an equal and parallel sum, so that the 
annual reproduction of goods and the annual reproduc- 
tion of capital may equal each other, and each may circu- 
late an equal volume of money in the same period of 
time. 

As soon as capital accumulates, the natural law of a 
standard price establishes an equality of exchange be- 
tween the primary laborers who reproduce commodities 
and the secondary laborers who reproduce capital. 

The products of primary laborers, for example, sell at 
twice their cost for fifteen billion dollars, and secondary 
laborers are supplied with goods by an expansion of 
money with which they buy them from primary laborers. 

Secondary laborers can not pay for goods with debts, as 
an outcome of the expansion in currency, and such in- 
flation is only created to gain time so it may be offset by 
a corresponding expansion in the selling price of the pro- 
duct of secondary labor. 

When secondary labor reproduces capital each year 
equal to the value of goods, and when such capital sells at 
twice its cost, then primary labor is furnished a supply of 
capital from a secondary inflation in exchange for the 
goods it surrenders. 

Primary labor surrenders half the commodities it pro- 
duces, and the natural law decrees that it can never be 
paid for its surplus commodities, unless it is paid by re- 



64 The Standard Price op Cotton. 

ceiving an equal surplus of capital, and the failure to 
share in capital becomes a failure to secure the value of 
its own labor. 

A standard price for capital is the absolute condition 
upon which its reproduction depends, and any failure in 
the standard price means that a corresponding volume of 
capital cannot be sold in a cash market. 

The facility with which buildings are reproduced when 
they will sell at twice their cost, may be illustrated as 
follows : 

When the First National Bank of Chicago desired to 
erect a building suitable to its location, and to derive an 
income by increasing the volume of rents, it was com- 
pelled to include in the site a number of buildings that 
were outgrown, one of which was a modern twelve-story 
building, which was destroyed to be covered by the new 
sixteen-story structure. 

It seemed a waste of capital to destroy a twelve-story 
building and replace it with one of sixteen, but when each 
sells for twice its cost, the margin above cost carried by 
the greater building was a gain instead of a loss. 

Everywhere, in the central portions of cities over the 
civilized world, will be seen the extinct remains of the 
one-story, two-story and three- story towns, which are 
blocking the way of the ten and sixteen-story improve- 
ments seeking to come in and replace them ; old structures 
refuse to give way to new ones, because, instead of the 
new buildings selling for twice their cost, the cost of land 



The Distribution of Capital. 65 

will take off as much of the price above cost as competi- 
tion will force the building to surrender, making the 
reproduction of buildings unprofitable. 

The Cost of Land. 

Cotton planters little suspect that cotton land, and 
other land deriving its income from the price of cotton, 
gets its price at the expense of the standard price of their 
staple crop, and that the market for land explains the loss 
of market for all other property. 

Why should a cost of land be saddled upon the indus- 
tries of the country ? Land may be treated as a free gift 
of nature, and may be used without having a cost price to 
interfere with industry. 

When a price for land makes its appearance, it does so 
at the expense of standard prices for labor products, and 
takes away as much of the price above cost as destructive 
competition will force from other prices. 

If the standard price of cotton is sixteen cents, and if 
cotton cost eight cents a pound, the price of land will rise 
by absorbing as much of the price above cost as compe- 
tition will determine, and as the rate of interest will allow 
land to capitalize. 

The total area of land devoted to cotton is about thirty- 
two million acres, and the general crop on this area may 
be estimated at fifteen million bales, and the price of 
land may absorb five cents a pound, or twenty-five dollars 
a bale. 



66 The Standard Price op Cotton. 

Twenty-five dollars a bale each year will then be esti- 
mated as profit from capital invested in land, and the 
total amount of value the price of land will absorb will be 
fixed by the number of bales produced and the rate of in- 
terest on money. 

If the safest investments for money pay five per cent, 
and returns the principal in twenty years, land will 
absorb value at this rate, and twenty-five dollars per bale 
on fifteen million bales, estimated for twenty future years, 
will create a price for land of three hundred and seventy- 
five million dollars a year for twenty years, or seven and 
one-half billion dollars. 

This sum, becoming land value, prevents the circulation 
of the money which would reproduce the same price if it 
was capital, and in becoming land value it has prevented 
the development in the South by which its capital would 
expand from the wooden era into the more modern one 
of brick and stone. 

If the rise in price of land was to succeed immediately 
in depressing other prices, it would prevent all progress 
as soon as it made its appearance, but the circulation of 
money enables this loss to be postponed by allowing the 
money required for standard prices of goods to be bor- 
rowed. 

The price of land does not at first succeed in depressing 
prices of goods to the cost of production, but it does suc- 
ceed in holding down the price of all improvements on 
land to their cost, and in so doing wages are held down 



The Distribution of Capital. 67 

to the level fixed by this cost, while the price above cost 
becomes a price of land, and the loss of money in the 
wage fund is made up by creating debts which future labor 
is expected to pay. 

The destruction of all prices above cost by the rise in 
the price of land is only postponed by debt, and is inter- 
fered with by panics and hard times; relief in the com- 
modity market allows the people to live from hand to 
mouth, while their wealth is concentrating to a few 
families. 

The fact that commodities demand a cash market, and 
the fact that the standard price makes necessary the full 
employment of labor, permits the market for commodities 
to hold to standard prices, while improvements upon 
land are reduced to their cost, because money can be 
borrowed, giving improvements as security. 

This fact, that cotton may hold its standard price 
while capital is forced to sell at cost, is the important 
fact upon which the success of any plan to valurize cotton 
must be based. 

To be able to maintain a fixed price for the entire cot- 
ton crop at a trifle below double its cost is entirely prac- 
tical, provided the entire crop is put under a control 
similar to coffee as it is now valurized. 

If the entire cotton crop was valurized at fourteen 
cents a pound, for example, the success of the scheme 
would be easier if the cost of cotton at eight cents was 
paid as rapidly as the cotton was ginned, and the re- 



68 The Standard Price of Cotton. 

mainder was paid as rapidly as cotton was sold, so as to 
get as much credit into circulation as was practical. 

Cotton is a crop that will carry over from year to year 
like coffee, and the world's demands are practically uni- 
form for the entire crop at fourteen cents a pound. If 
cotton sold, however, at a uniform valurized price of 
fourteen cents, the manufacturer, who was sure of get- 
ting his cotton when he wanted it at a standard price, 
would allow the planters to carry the surplus; hence 
fourteen cents must represent the minimum price at which 
seventy or eighty per cent, of the crop is sold, and then 
the price should advance regularly as the remainder was 
offered for sale. 

This is the principle upon which the so-called Trusts 
regulate and maintain prices. They do not hold up prices 
in defiance of the laws of trade, but seek to prevent a 
loss in price from the rise in price of land, and their suc- 
cess can be temporary only, and their defeat is only post- 
poned, because the price of land is working silently to 
undermine every market by an ever-increasing debt which 
can never be paid, and which is ever contracting the 
volume of credit, and civilization will be carried down by 
the destruction of all markets which will result from the 
continual increase of irredeemable debts. 



CHAPTER V. 

THE FAILURE OF REPRODUCTION. 

Inequality in wealth arises almost wholly from chang- 
ing the bounty of nature into a power to enslave labor. 
The gifts of nature are not gifts of land, as is gener- 
ally claimed, but are gifts of capital, and such gifts vary 
according to the different quantities of capital forming at 
different centers of attraction. 

Instead of natural resources and favorable locations 
becoming the foundations for an ever-widening demand 
for labor of greater skill and intelligence, they become 
property in land and block all paths to progress and close 
all opportunity to share in fixed wealth. 

Instead of the growth of capital developing character 
and morals by a wide diffusion of wealth, it is used to 
concentrate wealth, to engender the most distressing vice 
and poverty by changing gifts of capital into gifts of 
valuable land. 

When a standard price arises, it becomes a measure of 
differences in costs and creates a standard of wages 
for labor and a standard of profit for capital. 

The standard price is like the level of the great oceans, 
from which all elevations and depressions are estimated, 
and it is the interference with this measure by the price 



70 The Standard Price op Cotton. 

of land that is responsible for the wide inequality in 
every circumstance of civilization. 

Nature has made no mistake in offering rewards to men 
who promote human welfare, and as long as land may be 
had without cost, the benefits arising from the bounty of 
nature will spread uniformly to each, according to his 
service for humanity. 

The moment a cost for land makes its appearance, just 
so much of the reward of industry concentrates to the 
owners of land, and is thereby prevented from becoming 
a price for labor. 

When the cost of land absorbs half the price of capital, 
and equals one-half the total value of property, the entire 
circulation of money to buy capital comes to an end; a 
part of the laborers will be continually seeking work and 
their competition will reduce wages to a bare subsistence. 

When labor can neither buy or sell capital, then the 
concentration of wealth upon borrowed money begins by 
which the owners of wealth trade with each other, until a 
few families control it all. 

The circulation of capital demands that ten or twelve 
billion of dollars of bank checks change owners in the 
same time that ten or twelve billion dollars' worth of 
commodities change owners. 

But if there is a failure in the reproduction of capital, 
the volume of money with which labor should buy capital 
is retired from circulation, and labor is forced to compete 
for the cash to buy a meagre living, while the money for 



The Failure of Reproduction. 71 

capital is secured by property owners who borrow bank 
deposits and who create capital debts which future labor 
is expected to pay. 

When standard prices prevail in every market, an 
enormous quantity of bank checks will circulate as cur- 
rency ; one credit will pay off another, as one dollar pays 
another, and tens of billions of dollars may distribute 
wealth and pay labor with but little demand upon cash. 
When prices fall below the standard, the loss in the quan- 
tity of money is instantly felt in the failure of this credit 
circulation, and the only relief is to substitute a promise 
to pay money when no money is to be had. 

As commodities and building material of every kind are 
regularly produced and distributed, a living wage may be 
paid to both primary and secondary laborers, and stand- 
ard prices for goods may prevail. The secondary laborers 
who share in the distribution of goods are producing 
buildings, factories, railways, farms and other forms of 
capital. 

When all labor is thus drawing a living from the com- 
modity market, by an inflation of the currency which 
doubles the cost price, this living wage will temporarily 
cut out labor from sharing in the capital market. 

With its living assured, labor seems to depend upon 
capital for half of its employment, and it appears that 
unequal wealth is a natural condition which divides the 
population into classes according to ability to accumulate 
wealth. 



72 The Standard Price op Cotton. 

But a natural law seriously interferes with this seeming 
superiority of property owners, a law which requires all 
wealth to reproduce itself, by selling for its value in 
money which labor alone can circulate. 

The natural law does not tolerate a feudal system of 
wealth, whereby a property class may take credit for sup 
porting labor by providing work. 

Although nature was generous in bestowing capital as 
a bonus, yet this generosity soon ceases and the repro- 
duction of wealth demands a redistribution of the gifts of 
capital, and a failure to comply with this mandate is 
visited, if necessary, with the destruction of civilization. 

The natural law decides that wages may be held out' of 
circulation temporarily by an inflation of the currency, 
when used as a credit, and wages may be so held out until 
an equal inflation may arise in the capital market, and on 
this account labor must secure the benefit of capital in 
order to secure a return of the goods advanced to create 
capital. 

If fifteen billion dollars a year is paid out for goods 
costing half this sum, the profit must first be paid to 
labor to create capital before the goods can sell to other 
laborers from an inflation of currency. 

In order that primary labor may be paid for surplus 
goods, and secondary labor may be paid for the capital it 
produces, capital must first have its surplus set aside 
by a standard price, and then this surplus exchanging 
with another equal surplus creates a secondary inflation 



The Failure op Reproduction. 73 

of money, which will allow labor to buy as much capital 
each year as it sells goods. 

That wages are much below this standard needs no 
proof; standard wages should consist of a sum with which 
labor could buy all the commodities it can produce each 
year, to which an equal sum is added for buying capital 
each year. 

The low wages of twenty -five million laborers who re- 
ceive less than five hundred dollars a year each, confines 
the demand from them to common labor products, throw- 
ing the entire system of production and distribution out 
of balance. 

This enormous volume of low-price products, compared 
with the limited supply of luxuries, has the effect of over- 
loading the food supply with uncalled-for transportation 
and distributing expenses, which a higher wage rate 
would distribute more uniformly over a much better bal- 
anced supply. 

The result of this lopsided market is an abnormal rise 
in prices of food out of all true relation to prices in gen- 
eral, which operates against wages that cannot advance 
to half their standard rate, forcing capital to load down 
such supplies with all the costs the low wages can be 
forced to carry. 

This abnormal development of the supply creates uni- 
versal complaint from labor, on account of its failure to 
secure a living, and complaints from capital that dt 
cannot earn its expenses and replacement charges and is 



74 The Standard Price op Cotton. 

gradually becoming bankrupt from its constantly increas- 
ing indebtedness. 

Prosperity. 

The history of the rapid rise in wealth and prosperity 
of every State in the United States is a history written 
upon blank pages of virgin forest and soil by naked arms 
without the assistance of capital except the capital which 
develops on its own account. 

Every new population is scantily supplied with money, 
but upon free land a small volume of money will quickly 
develop an increasing volume of business, and standard 
prices will soon create all the money any people have the 
power to circulate. 

Cities grow from virgin soil in a few years by the rapid 
circulation of a small volume of money, speeded up by a 
high rate of interest and profit. 

The new wealth of a rapidly developing community 
becomes the property of the men who change free land 
into private property, men who had no capital, but who 
in a few years command hundreds of millions of dollars' 
worth of wealth. 

Cities grow and buildings arise as if by the magic rub- 
bing of Aladdin's lamp; the money kept in circulation by 
the activity of new building not only pays for all labor 
and material, but supplies a volume of money with which 
this wealth is being bought and sold and distributed to 
its owners. 



The Failure op Reproduction. 75 

For some mysterious reason, the benefit expected to 
arise from the increase in wealth not only fails to appear, 
but a partial paralysis of industry succeeds every period 
of building activity. 

The money put into circulation each year from building 
operations piles wealth in stacks upon every favorable 
location, and such money should not go out of circulation 
after the wealth has been created, but greater quantities 
of money should come into use and remain in use as 
greater quantities of wealth are permanently added to 
the supply. 

It is very plain that the wonderful increase in volume 
and variety of goods must be accompanied by an equal 
increase in the quantity of money, and why should not 
a similar increase in quantity and variety of capital be 
accompanied by its corresponding increase in quantity 
of capital money? 

As must happen in all cases when land is treated as 
private property, wealth cannot be distributed according 
to the intent of nature, but the rewards of nature are 
perverted, wealth becomes a prize in a race to secure 
favorable lands, and it becomes a speculation and busi- 
ness becomes a gamble ; politics is a game of spoils where 
the special privileges of land owners, capitalists and 
bankers are protected. 

Men failing to land a prize in the mad struggle for 
favorable lands soon discover that all the doors of oppor- 
tunity have been closed against them, and they face a 



76 The Standard Price op Cotton. 

future with no promise, a dreary and hopeless struggle 
for subsistence. 

Limit in Wealth. 

There is a limit to the industries, to the farms, the 
towns, cities and railways a people may support, because 
one-half the labor of all the people is required to sustain 
life. 

New railways, industries and cities cannot be dupli- 
cated merely because there is plenty of land upon which 
to build them ; the limit in quantity of capital is fixed by 
the limit in sales of goods. 

As wealth grows in stores of goods, in farms and cities, 
in industrial plants and railways, the opportunities 
should multiply to secure a share in it as the quantity of 
wealth increases, but opportunity will depend upon the 
regular circulation of a volume of money that embraces 
the wealth, and which permits the regular distribution of 
wealth in company with the similar distribution of goods. 

Shares in accumulated wealth are shares in its repro- 
duction within a given period, its owners being required 
to sell a given proportion each year for its value in money, 
and any failure to sell in a cash market for capital be- 
comes a failure of the reproduction and distribution of 
wealth. 

The men who first occupy a new country secure the 
most favorable lands, against which proceeding no valid 
objection may be made, but they afterward profit enor- 



The Failure of Reproduction. 77 

mously from a rise in the selling price of favorable lands, 
to which rise in price great objection need be made, be- 
cause a gift of capital arising from labor is thereby 
changed to a gift of land coming from nature, and labor is 
denied a return of the gift of capital by being charged 
with a cost of land which they should have without cost. 

A man builds at a favorable location, and is immedi- 
ately offered three thousand dollars for an improvement 
costing but one thousand dollars; and since the locations 
to which capital may thus concentrate are limited, and 
since men cannot build anywhere and sell at a profit, the 
difference between the cost and selling price is estimated 
to be the intrinsic value of the location. 

The rise in price of land has a wholly opposite effect 
upon the circulation of money than the same rise in price 
of the improvement. 

When capital concentrates to favorable locations, either 
from the production or sale of goods, the money with 
which the improvement is made is money received from 
the standard price of goods, and is money which must he 
returned by a standard price for the improvement. 

After capital is established and its annual profit en- 
ables it to pay dividends, the same rule continues and the 
profit has no short cut by which it can return to labor, 
but it must go the round-about way provided by natural 
laws of distribution. 

A building costing one thousand dollars and selling for 
three thousand dollars creates a two-thousand-dollar- 



78 The Standard Price op Cotton. 

building surplus above cost, to exchange with other sur- 
plus capital above cost. When this surplus becomes a 
price for land, there is a failure in trade by which it 
would inflate the currency. 

The inflation of money arising from selling goods above 
cost, permits the widest expansion and experiment in 
introducing new kinds of supplies, because this surplus 
of money may give to a new object an enormous profit 
which in turn will cause the new supply to increase 
rapidly until the standard price is reached. So also the 
price of improvements above cost is expected to make 
available an enormous surplus of money by which changes 
and experiments with capital may be made wherever it is 
possible to use new capital to advantage. 

If the capital required at a given location only costs as 
much as the annual profits it makes, the rate of profit 
would be one hundred per cent, and the fat or increase 
in the selling price would permit the rapid change and 
increase in capital to secure a high rate of profit for an 
ever increasing quantity of capital. 

This is well illustrated by the recent rise of the automo- 
bile industry, which rise was at one time threatened by the 
fears of bankers, who claimed that the sales of machines 
and consumption of new capital in this industry would 
result in disaster to other business. But the automobile 
industry supplied its own capital; not only supplied the 
money with which the public purchased its product, but 
the money as well which it consumed as capital, and in- 



The Failure of Eeproduction. 79 

stead of the automobile industry becoming a menace to 
general business, it has been its one anchor to the wind- 
ward in trying times. 

The fat in prices above cost is intended to permit the 
utmost mobility in progress, whereby old forms will be 
readily abandoned to obtain greater rewards arising from 
new forms, on account of the greater profit carried. 

Making and selling buildings, factories and railways of 
different kinds is essentially the same enterprise of identi- 
cal labor as making and selling different kinds of goods, 
and if the cost of land does not interfere with the stand- 
ard price, the demand for labor in the capital market will 
add a sum to wages equal to the sum labor receives from 
the commodity market. 

Every city in the world furnishes the student with 
thousands of instances where the cost of land is prevent- 
ing the circulation of money by preventing the replacing 
of old structures with new ones. 

Everywhere old and dilapidated buildings which re- 
turn from fifty to one hundred per cent, profit in rents are 
permitted to encumber valuable locations, because the 
price asked for land is equal to the sum required to re- 
place the old building with the new one the location 
demands. 

For example, an old brick building worth no more 
than ten thousand dollars rents for eighteen thousand 
dollars a year, and a new building would increase this 
rent to thirty thousand dollars a year. The new building 



80 The Standard Price of Cotton. 

would cost two hundred thousand dollars and sell for 
four hundred thousand dollars, and if capital was as free 
to supply the market with buildings as it is free to supply 
it with goods, the demand for labor to reproduce untold 
millions of capital would soon circulate the volume of 
money the market requires. 

But the capitalist seeking to invest and replace an old 
ten-thousand-dollar structure with a modern one to cost 
two hundred thousand dollars, discovers he must pay two 
hundred thousand dollars for the land first, and have 
nothing, and must expend an additional two hundred 
thousand dollars for a building which he can scarcely 
sell at a profit and from which he can derive an income 
no greater than the rate of interest upon money. 

If every location was open to capital, and if the public 
could be supplied with buildings by competition accord- 
ing to the profit they pay at different locations, the build- 
ing boom and reproduction of capital would end the dis- 
cussion of social problems. 



CHAPTER VI. 

THE FINANCE SYSTEM. 

Examine the total wealth, with its value of more than a 
hundred billion dollars, and the fact will become apparent 
that while this wealth was being developed, no less than 
fifty billion dollars in bank checks was added to the cir- 
culation and was cancelled by being redeemed in labor. 

The great mystery of finance is locked up in the com- 
plete disappearance of this money, and the reason a mys- 
tery is so concealed is because no scheme of finance has 
ever been able to recall the money into circulation and 
create the same market for wealth after it has been 
established as was necessary in order to produce it. 

Every scheme of inflating the currency, either by direct 
issue from the government or indirectly by banks under 
government control, is based upon some theory whereby 
the value of property shall be coined into the money which 
buys and sells it. 

Proudhon, one of the ablest writers on the subject, con- 
ceived the great idea that complete individual freedom 
would be secured if property sold on demand for its value 
in money, and if labor could sell on demand for its value 
in money. 

To secure this much to be desired freedom, a theory of 
free banking was proposed whereby any association of 



82 The Standard Price of Cotton. 

individuals would be permitted to issue money secured by 
the value of the property pledged to redeem it, thus inflat- 
ing the currency wherever property existed with no other 
limit than a price of property which might climb so high 
as to try to reach heaven, a property which first creates 
more money and the more money increases its price and 
the higher price creates more money, allowing inflation 
to grow with what it feeds upon, until it explodes. 

The fact, that the quantity of cash is limited by the 
cost price of goods, and the fact that any inflation of cash 
can only get into circulation by increasing total costs, 
were facts unknown to Proudhon, and are the facts that 
bring disaster upon every scheme of inflation which is in 
opposition to them. 

The fact that cash is limited by the cost of goods is sup- 
plemented by an equally important fact that credit is 
limited by the price above cost, and this selling price is 
again limited by the cost, because credits based on price 
above cost must be made redeemable in cash based upon 
cost. 

Credit is a child of cash, and each cash dollar has a 
certain fecundity by which it can give birth to a limited 
offspring of credit dollars, and these credit dollars in turn 
inherit a nucleus by which they become parents of other 
credit dollars, and expansion must proceed in obedience 
to the natural law by which growth and offspring are 
regulated. 

The basis of elasticity in finance is founded upon the 



The Finance System. 83 

ease with which credit is fertilized, and takes up the 
functions of cash in order to give birth to secondary 
credit. 

Money expands in volume by a dollar in cash giving 
birth to at least two dollars of credit, and this credit in 
turn acquires the fecundity of its parents, and each dol- 
lar of primary credit may give birth to a family of sec- 
ondary dollars. The increase of primary credit, over its 
cash parents, arises from the fact that such credit is one 
step removed from its source of vitality, and the reason 
secondary credit may multiply over its primary parents 
is because it is two removes from its source of vitality. 

Cash is instantly redeemed in labor, and for this reason 
is so close to its source of vitality as to be inseparable 
from it, but primary credit is not redeemable in labor, 
and is one step removed by being redeemed in money 
which is redeemed in labor; secondary credit is two steps 
removed by being first redeemed in primary credit, which 
is then redeemed in cash, and cash above is redeemable 
in labor. 

This indirect process provides room for money to ex- 
pand and for wealth to grow and maintain its standard 
price while it is increasing in quantity; each remove from 
labor permits an expansion of money by the longer time 
it may consume before it reaches labor, and thereby keeps 
in circulation without forcing labor to redeem it on de- 
mand. 

Primary credit expands the currency in proportion to 



84 The Standard Price of Cotton. 

the increase of goods sold at standard prices, and capital 
grows in quantity by its ability to increase the quantity 
and variety of goods. 

Primary credit will take on the functions of cash in 
buying and selling goods with bank checks as if they were 
cash, and will thus add a volume of checks to the com- 
modity market, which performs the functions of both cash 
and credit. Capital demands a quantity of money greater 
than cash and primary credit combined and this great 
supply comes from surplus bank deposits, which move 
more slowly because they must be redeemed in primary 
credit before they may change into cash. 

The great quantity of wealth accumulated from past 
labor may have its value coined into current money, pro- 
vided a given proportion of such money is paid in higher 
wages, so that the total volume will, in due time, be 
redeemed by labor. 

The secondary sum which must be added to wages is 
exactly equal to the sum received each year from the 
sale of goods, and the secondary sum must be an aliquot 
part of the whole value of capital. 

The reason the secondary wage fund must equal annual 
primary sales is because the total value of capital is a 
multiple of annual sales, and the wages derived from 
capital must be that aliquot part of the total which the 
rate of profit determines it shall be. 

The reason for including an aliquot part of the value 
of capital in the wage fund is found in the service which 



The Finance System. 85 

present labor receives from the labor of the past and 
which must be measured in money based upon past 
labor, so that past labor can be valued and converted into 
current funds. Assume, for illustration, that any particu- 
lar property seeks to sell for its value in money and it 
would coin the money for this purpose. 

The nearest approach to this process is to substitute 
coinage by obtaining a loan, and the most scientific sys- 
tem of regulating such loans has been established by the 
Credit Foncier of France, an institution patterned after 
the work of Proudhon. The property owner desiring 
money from the Credit Foncier pays no commission, but 
supplies the information by which it is ascertained how 
the money is to be returned. 

The bank is permitted to issue its own credit currency 
based upon the property it accepts, and it loans half the 
value, which is the usual practice over the entire world, 
but with this institution the loan is amortized so that the 
interest and a part of the principal is repaid each month, 
something on the plan of our building and loan associ- 
ations. By cancelling a part of the principal with each 
payment, a circulation of secondary credit is established 
which represents the price of the property itself, distinct 
from the money returned as interest on the loan. 

In seeking to discover how any property may coin the 
money for which it sells, it is discovered that the circu- 
lation and quantity of this money is provided by the can- 
cellation fund, and not from the sum paid as interest. 



86 The Standard Price op Cotton. 

The most important problem of finance is found in the 
fact that interest and principal represent two separate 
credit circulations, one being primary and the other sec- 
ondary. Suppose, for example, a property returns a net 
income of six per cent, equal to the interest upon cash, 
the fact is beyond dispute that such an income cannot 
provide money with which to reproduce the price of the 
property itself, and it is on this account that loans upon 
property are limited to half their value, so that a part of 
the income may reproduce the money consumed by the 
loan. 

A six per cent, rate presumably returns the value 
of a property in about sixteen years, but such a presump- 
tion is contrary to the facts, because a six per cent, income 
returns no part of the value of the property itself, but is 
only an index pointing to an equal annual income of six 
per cent., which will return the price of the property in 
about sixteen years. 

The six per cent, interest rate on money comes from the 
sale of goods in the primary market and represents money 
paid in wages, and is as rapidly consumed as it is received, 
and it cannot originate a quantity of money with which 
to buy and sell the property. Capital must earn a rate 
that is double the rate of interest, and thereby establishes 
its standard price and the standard price separates its 
surplus from its cost, and the surplus may then inflate 
the currency by its own sale at the standard price, as 
was illustrated with surplus cotton. 

The financial system is constructed in the following 



The Finance System. 87 

manner: Cash — payable in labor, on demand — is the 
nucleus of circulation and is limited in quantity by the 
labor cost of goods. 

Cash gives birth to primary credit by the rise in price of 
goods above cost, which rise splits off a part of the supply 
as surplus, to trade with an equal surplus, and to originate 
a volume of credit money, for trading purposes, by selling 
the surplus at the standard price. 

The inflation of prices from primary credit provides the 
profit which is paid to labor to produce capital, and in 
thus employing labor primary credit performs the func- 
tions of cash and originates secondary credit from capital. 

When primary deposits of banks are used to employ 
labor and create capital, such labor becomes the cost 
of capital which must crystallize and accumulate upon 
locations where the profits will be no less than twice the 
rate of interest on money. 

The increase in the profits above the rate of interest 
causes capital to increase its price above cost, which splits 
off a part of the supply as surplus to exchange with an 
equal surplus at the advanced price, and generates a cor- 
responding volume of secondary money for trading or 
distributing purposes. 

It is required by natural law that the inflation of money 
above cost must be paid to labor. 

The financial system is sustained by bank deposits, 
whereby a cash reserve sustains a primary credit equal to 
the total volume of cash, and where the cash reserve and 



88 The Standard Price op Cotton. 

primary credit combined sustain a secondary reserve four 
times as great as the primary credit or twice as great as 
the volume of cash and primary credit combined. 

The line which separates primary from secondary bank 
deposits is the line which divides the active daily checking 
accounts from the less active accounts. 

Primary deposits, of about three billion dollars buy 
and sell fifteen billion dollars' worth of goods each year, 
in connection with cash. 

Secondary deposits of about twelve billion dollars should 
buy and sell a volume of capital each year equal to the 
volume of goods sold ; but in addition to distributing new 
capital, secondary credit is required to keep the total 
price of capital at its standard by being able to buy any 
quantity offered in any year at the standard price. 

If only fifteen billion dollars' worth of capital may be 
distributed to new owners because an equal sum is re- 
ceived from the sale of goods, how can the secondary cir- 
culation maintain standard prices for capital if twenty 
or twenty-five billion dollars' worth is offered for sale in 
one year? The elasticity of secondary credit, by which 
it responds to increased demands without a decline in 
standard prices, comes from the fact that the entire twelve 
billion dollars of secondary bank deposits acts as a reserve 
for this purpose. 

The total secondary deposit of twelve billion dollars is 
being renewed from wages at the rate goods are being 
constantly replaced, and surplus wages should be invested 



The Finance System. 89 

in capital at the rate they accumulate, which would not 
necessarily disturb the volume of secondary deposits. 

If, therefore, a sudden demand arises to sell five or more 
billion dollars' worth of capital securities than are regu- 
larly consumed, it would reduce the deposit account 
temporarily, but it would also reduce the supply of securi- 
ties and need not disturb the standard price. 

The standard price of capital depends upon a sum 
equal to that realized from the sale of goods, which be- 
comes new secondary deposits each year and which is 
drawn off by being invested in securities at the same 
rate. 

This sum does not become wages before it becomes higher 
prices for capital, for the same reason that higher prices 
for goods must come first and provide the money to buy 
goods at the higher price. 

This question of how an inflation of currency accumu- 
lates and advances prices ahead of wages, is simple when 
it is explained that labor advances its services at all 
times ahead of receiving its pay. 

The advance in prices ahead of wages comes from an 
accumulation of money in small installments from millions 
of laborers who work and wait to be paid, thus giving out 
the first extension of time required to expand the currency 
by a lag in the time of paying wages. 

It is a well-known saying among rich men that their 
chief difficulty in accumulating wealth was found in 



90 The Standard Price of Cotton. 

saving the first thousand dollars, but with this start they 
obtained a command over labor, and the remainder of 
their gains were comparatively easy to secure. 

Nature does not require saving for the first surplus 
which is to give command over labor and is to bring about 
the accumulation of wealth, nor does nature ask a particu- 
lar class of rich men to furnish money for this purpose, 
but provides the first installment of money to raise prices 
from a lag in wages, and the rise in prices is kept moving 
over the market, inflating the currency to its required 
volume. 

As long as standard prices prevail, a cash market will 
be a necessary result ; the rise in prices must be followed 
by a rise in wages, because there is no other outlet for the 
circulation of money. As long as the total volume of 
goods can be produced and sold each year, and as long as 
an equal volume of capital can be reproduced and sold 
each year, the demand for labor becomes insatiable and 
the entire wealth must become the property of laborers, 
and total profits must be paid to labor as wages or as 
dividends. 



CHAPTER VII. 

THE FAILURE OF FINANCE. 

The amount of capital nature distributes as a gift before 
she demands a return to labor is fixed by the extent of the 
territory she offers man to subdue and explore. 

Nature gives away capital when it first appears in order 
to insure its creation, and after capital is once secured an 
equal sum may be taken from labor by debts on account 
of the inflation of currency necessary to reproduce capi- 
tal which is equal to twice its cost; thus labor may lose 
capital once as it is being produced and may lose the cost 
of it the second time by the support it gives to debts, but 
then the injustice to labor will end and civilization will 
be destroyed. 

The gift of capital is a lure inviting men to dangerous 
endeavor; to have them rush to the four corners of the 
earth seeking treasure ; to have them improve each oppor- 
tunity for profit ; to travel, to invent, to discover, until the 
whole earth is known and until the first faint development 
at each point becomes the nucleus of the growth of wealth 
to follow. 

While the lure of gain is extending the fields of industry 
everywhere, improving millions of farms, establishing the 
foundations for permanent towns and cities, and marking 



92 The Standard Price op Cotton. 

out the lines of steam and electric connections between 
them, it is as rapidly concentrating half the population of 
the world to live in towns and cities and is as rapidly ex- 
hausting the supply of surplus labor, and the demand for 
more labor at low wages invades the ranks of women and 
children, who would have remained secure had wages ad- 
vanced in company with the advance in wealth. 

The first gift of capital is like the first crop from new 
lands under cultivation, but it is the gift of one crop only, 
and when the owners seek to convert it into a gift of money 
by selling it, the law decides that the inflation of money 
which includes the gift must equally include the payment 
of wages, and higher prices must be equalized by higher 
wages in order to furnish the required market. 

The inflation of money which raises prices divides 
laborers into two great classes, half the total wages de- 
pending upon the cost price and the other half depending 
upon the price above cost. 

The inflation of currency creates bank deposits which 
are paid out for labor and material in producing capital, 
and which are cancelled as rapidly as goods are consumed 
and must be replaced with new profits from new goods. 
The constant reproduction of goods, selling at standard 
prices, restores the bank deposits used in creating capital, 
and after capital has been established the same repro- 
duction produces the perpetual flow of interest which is 
paid for the use of capital. 

Capital must supply its own money each year by a 



The Failure of Finance. 93 

standard price for capital which exactly balances and 
equals the money paid for goods in the retail market. 

A failure in capital to secure a market at twice its cost 
destroys the circulation of this secondary money and an 
artificial market is created by the men who can borrow 
the volume of money which would otherwise be supplied 
automatically from an increase in wages. 

The amount which may be borrowed is exactly equal to 
the sum nature bestows as a gift in the first instance, 
namely, the cost price of capital may be borrowed when- 
it has concentrated at favorable locations, and when it 
earns dividends equal to the rate of interest. 

This permits a single reproduction of the gift of capital 
by creating debts which may expand until they equal the 
total cost, after which the artificial stimulation from debt 
ceases, and ushers in the end of the civilized world, and 
the history of the Roman Empire may repeat itself when 
modern nations assist in the destruction of each other by 
the attempt to postpone the fate which debt has prepared 
for each of them. 

The development of capital is progressive; it grows 
with the momentum acquired by its own advance; the 
volume to be added to the supply each year will depend 
upon the profits received from goods and from the profits 
derived from selling capital at twice its cost. 

The growth of capital depends upon the growth of bank 
deposits, and although bankers may inflate deposits quick- 



94 The Standard Price op Cotton. 

ly, yet deposits may remain at their limit and industry 
may not advance. 

Deposits must be broken up in payment for labor, and 
when they decline on this account the cash in the reserve 
is released, and may be loaned to restore deposits as fast 
as employment may be found for labor. 

When capital is being reproduced and wages have not 
advanced, the profit from selling capital above cost will be 
divided among the owners of capital instead of labor, but 
such a division requires that the money must be obtained 
by creating debts. 

The increase in debt is progressive, and it is accelerated 
when money in great quantity can be obtained in advance 
of the natural and regular increase of price which is ex- 
pected to follow only after capital has been securely 
established. 

The progressive increase of debt could never have gained 
a foothold but for the fact that favorable locations are 
limited and differ greatly from each other, and from 
the fact that the quantity of capital at each point depends 
upon the advantages of each location. 

The competition for land arises wholly because different 
locations will crystallize particular forms of capital which 
will sell above cost on account of the sale of goods at such 
points, and competition for land does not arise, as has 
been falsely assumed, on account of any pressure of popu- 
lation against an insufficient supply of land. 

Bidding up the price of land, by taking away the rise 



The Failure of Finance. 95 

in price of capital, has the effect of donating this price to 
the owners of land, and prevents labor from getting any 
of it, because the builder must sell the building at cost 
and must hold wages down, in order to secure a return of 
the cost of land. 

The fact that labor is cut out from the distribution of 
capital limits the distribution of capital to property own- 
ers, and limits the amount they may secure by compelling 
them to buy it with the money debt brings into circulation. 

The fact that nature limits buying to labor, by demand- 
ing a cash market, or permits buying by creating debts 
limited to the cost of capital, is the fact that prevents the 
price of land from circulating a volume of money by which 
land might be distributed and by which each laborer 
might buy his share of land from an inflation of land-value 
money as he is able to buy his share of goods with the 
inflation the price of goods circulates. 

As long as land is advancing in price this gain will 
replace the profits consumed in producing and maintain- 
ing capital and will restore bank credits ; the failure of the 
natural circulation of money prevents the payment of 
capital debts for the reason that the debt itself was neces- 
sary because money could not circulate, otherwise no debt 
would have been called into existence, and the money 
which debt called into circulation is cancelled and goes 
out of circulation when the deposits it creates have been 
spent for labor and have been consumed as goods. 

As capital is creating more or less improvement upon 



96 The Standard Price op Cotton. 

every favorable location, it also creates a perpetual mar- 
ket at standard prices for goods. This is true also when 
capital ends its first advance over the land and begins its 
first reproduction ; the money arising from the advance in 
price of land is used to employ labor. 

While land is advancing in price the speed of develop- 
ment is greatly accelerated, because the greater employ- 
ment of labor in every direction keeps up the standard priec 
for goods in every market, and to this profit in goods is 
added the profit derived from the advance in the price of 
land. 

The advance in the price of land reaches its limit when 
the debt it creates equals the cost price of capital, and 
then, the volume of profit shrinks to the sum derived from 
the sale of goods alone. 

As development is extending to locations of every de- 
scription and is uncovering different varieties of natural 
treasure, the diversity of improvement is parelleled by 
an equal diversity in the variety of goods, the quantity of 
which may vastly increase on account of the increase of 
capital. 

While the progressive expansion in volume and variety 
of goods is taking place, population will increase and 
wages will advance at the same time, and make it appear 
on the surface that capital is supplying money for the 
goods market. 

The gain in wages from an increase in quantity and 
variety of goods is wholly a primary gain, and does not 



The Failure of Finance. 97 

flow from the increase of capital which takes place at the 
same time; this process confuses the student concerning 
the source of increased wages in prosperous periods. 

Capital cannot increase greatly in quantity unless it 
also greatly increases the quantity and variety of goods, 
and as it extends the primary market to the four corners 
of the world. 

Gifts of capital change into gifts of land for the reason 
that when land is treated as private property, no other 
method is open but to buy the land upon which capital 
may concentrate. There is no scarcity of land which pre- 
vents wages from rising, but the scarcity and difference 
of location, checks progress in every direction when land 
is treated as private property. . 



When a price for land has been established by the com- 
petition to secure locations, this competition will create 
a price for unimproved or bare land, which price will be 
based upon the selling price of the improvement any par- 
ticular location will support. 

The ability to sell land far in advance of any money the 
improved location will generate, causes an advance de- 
mand upon bank credits, and this advance demand for 
money creates a debt. 

The demand for money to buy bare land causes the 
money needed and created for other purposes, to be bor- 
rowed, and in doing so the loan anticipates the future 



98 The Standard Price op Cotton. 

money which capital should supply, and capital is thereby 
relieved of its duty of creating money by a promise to 
pay money in the future, and no demand arises calling 
money into circulation to support a cash market, and this 
loss in circulation of money is equalized by a failure of a 
corresponding volume of capital to find a market. 

When a bond issue is sold for a railway, equal to its 
cost, and bonds are payable in thirty years, the railway 
has been relieved from supplying the quantity of money 
represented by its bonds, and has deprived the market of 
this circulation, and what is clearly true of the bonded 
debts of railways is equally true of all long-time capital 
debts. 

When development is rapidly conquering a new terri- 
tory, land is first obtained without cost, and the advance 
in price of land will replenish the bank deposits consumed 
to create capital; replenish them to the same extent as 
though the profits were derived from an advance in price 
of improvements, and land continued, as it began, to have 
no cost. But when this advance in price of land ends and 
fails to reproduce the profits by which bank deposits are 
replaced, the reproduction of money by labor ends and 
bankers seek to replace labor by inflating the currency 
with a spurious circulation of water instead of blood. 

The money which may be had in advance becomes a 
great incentive to bankers to multiply debts as rapidly as 
securities can be sold, and as rapidly as bank deposits can 
be replenished. 



The Failure of Finance. 99 

If the reproduction of an old wooden structure into a 
better one of the next higher period is to cost one million 
dollars, and if the accumulation of credit reduces the rate 
of interest so that a price of three million dollars can be 
secured, a profit of two million dollars becomes a tempting 
bait for the banker who supplies the credit and for the 
promoter who combines the required locations. 

As one building period is succeeded by the next higher 
period, bankers will have insatiable demands for loans of 
millions for reproducing and for rebuilding the capital 
which then occupies all the points of advantage. 

The supply of credit from which bankers secure billions 
of dollars to inflate debts must be derived from dormant 
secondary bank deposits which are absolutely in their 
control because they are not required in the primary mar- 
ket, and which are temporarily replenished by the profits 
derived from their own financiering, and they build one 
pyramid of debt upon the inflation derived from another, 
until the end of the increase of debt will bring about the 
catastrophy they are so industriously inviting and en- 
couraging. 

When advances in prices for land no longer replenish 
secondary deposits, the investment market narrows very 
suddenly by being forced to depend upon the profits de- 
rived from goods, and which can only be temporarily 
taken by preventing wages from rising. 

A decline in wages must be followed by a decline in prices 
of goods by the failure of demand for them among mil- 



100 The Standard Price of Cotton. 

lions of laborers, and a fall in prices of goods cuts off an 
equal sum in dividends and undermines the prices for 
securities, which then decline so rapidly as to cause what 
is known as a panic. 

When secondary bank deposits are not replenished bil- 
lions of securities are forced to depend upon primary 
deposits, and the edge of the precipice upon which all 
commercial enterprise has been built narrows suddenly, 
and the success or failure of billions of wealth is tied to 
the success or failure in the annual harvest of our most 
staple crops. The fall in the price of cotton has yet to 
write its final chapter by the decline in price of an ava- 
lanche of securities, the foundations of which are being 
undermined by low prices of cotton, to be followed by simi- 
lar declines in prices of other staple crops. 

As long as new capital may be supplied by reducing the 
rate of interest on money, the banks which can supply 
credit at the lower rate obtain an enormous monopoly 
of credit, because the reduction of the rate from six per 
cent, to four per cent, on twenty billion dollars of secu- 
rities allows securities to expand to thirty billion dollars 
and provides ten billion dollars profit in new securities. 

The increase of wealth upon a constantly narrowing 
basis of profit is fast pushing credit to the wall, and is 
fast preparing a world-wide calamity by a destruction of 
markets from a world-wide increase of debts. 

The grasp of great bankers upon the twelve billion dol- 
lars of secondary bank credits is further concentrated by 



The Failure of Finance. 101 

their connection with the New York Stock Exchange, 
where they maintain prices for the securities they own 
and protect. 

This control of credit comes to them because they are 
able to loan a greater proportion of the value of securities 
than may be loaned by other banking institutions, and 
they not only draw money from the entire country for in- 
vestment on this account, but they force the securities to 
come to the market where they can obtain the greatest 
loans. 

This pretense of a cash market on the New York Stock 
Exchange is rudely shaken whenever a real market for 
securities is actually required, for then the failure of de- 
posits to be replenished puts the entire pressure of demand 
upon the cash reserves, and establishes the stock exchange 
as a fraud upon the public, maintained for the benefit of 
gamblers ; but in spite of its failings, this cash market has 
so concentrated credit to one point as to make itself as 
necessary as a cancer which to cut out is to kill the 
patient. 



CHAPTER VIII. 
Remedies. 

Two systems of social reform are securing a world-wide 
following because they recognize the foundations upon 
which civilization has been built — land and capital, but 
neither of them are conscious of the fact that debt is the 
fatal disease of civilization, and that the circulation of 
money is the most vital function of the body politic. 

Socialism. 

The strength of Socialism is based upon its clear recog- 
nition of the rights of labor to own and control capital, 
and upon its vivid sense of the fact that the failure of 
modern society is due to the failure of labor to acquire 
capital. 

Socialism presumes that this failure is caused by the 
greed of certain supermen called capitalists, who occupy 
the seats of the mighty and who oppress the people of the 
civilized world for the sole purpose of robbing laborers. 

The Socialist reasons from analogy and reasons falsely ; 
he accepts the abnormal in social growth as the highest 
and greatest manifestations of the normal, and he fails 
to realize that natural processes must work for the good 
of humanity in the future as well as having so worked in 
the past. 



Kemedies. 103 

The Socialist forgets that this marvelous civilization 
has come into existence without help from human legis- 
lation, and has pushed its way upward in spite of legis- 
lative interference. 

The Socialist admits the effectiveness of evolution in the 
past history of the race, but asserts that at the present 
time nature has become incompetent and must resign in 
favor of a Socialist administration. If the world would 
escape damnation, according to this theory, a new church 
and a new pope must be imposed upon a suffering people ; 
the world in facing Socialism must face a modern revival 
of Jesuitism without God. 

Seeing wealth gather and crystallize in great combi- 
nations of capital, the socialist reasons from analogy, 
and asserts that this process is the work of natural laws 
of evolution, and that this evolution will be completed 
when all separate combinations are merged into one great, 
central power, and then evolution resigns and quits the 
job and turns the affairs of humanity over to the more 
competent powers which are to be vested in a socialist 
government. 

Socialists take it for granted that the abnormal distri- 
bution of wealth is normal and is the result of evolution ; 
they do not see that monstrous wealth is an accumulation 
of diseased fat. 

The fear that combinations of capital will continue to 
increase in size until no law, natural or human, may cope 
with them, is a fear born from a failure to realize nature's 



104 The Standard Price of Cotton. 

demand for efficiency, a fear that is blind to the fact that 
where growth in size and increase in efficiency do not 
harmonize, the increase in size must fail. 

As has already been explained, the quantity of capital 
which may crystallize at any location around a profit is 
controlled by the efficiency in utilizing locations which 
are scattered all over the earth, and this fact alone bases 
the success of capital upon its keeping in close touch with 
its base of supplies. 

The natural law for all capital has been explained as 
a law which limits its growth by its ability to arrive at the 
limit of efficiency, which is secured when half the gross 
receipts it collects may be credited to profits. 

This standard of efficiency gives no advantage to cor- 
porations on account of their size, but, on the contrary, 
splits capital up into such parts as the particular circum- 
stance in each case will decide; a smaller concern may 
reach the standard of efficiency as easily as a great one, 
and it cannot be made to suffer from competition on ac- 
count of mere difference in size. 

Socialists have an abnormal fear of the power of capi- 
tal ; they do not see that because a volume of capital is too 
small to be most efficient, it may also be too large; they do 
not recognize the harmony of natural law which keeps all 
things in equal relation to each other. 

Great combinations of capital, as in a railway system, 
for example, demand the personal supervision of each 
laborer connected with the enterprise, one intelligence 



Kemedies. 105 

balancing another, and the success of the business will 
depend upon vesting the management as closely as pos- 
sible, with the men in charge of the physical works. 

Bankers and financiers manage great corporations for 
the benefit of securities by the supervision of their own 
favorites and by an elaborate system of office charts, plac- 
ing control in the hands of clerks and other incompetents 
who have less ability for the particular tasks imposed 
upon them than street arabs. 

The Socialist assumes that this inefficient white-shirt 
supervision may be extended so as to include all industry 
and all commerce, and that socialist leaders will get the 
best jobs, otherwise there would be no inducement to lead. 

The strength of Socialism is found in its vivid percep- 
tion of the great truth that labor alone is entitled to the 
benefits of capital, and its success must be founded upon 
the right of labor, which is the law of humanity, and 
socialists rightly conceive that capitalists cannot con- 
stitute a class with special rights and privileges opposed 
to the rights of labor. 

The weakness of Socialism is founded upon an heredi- 
tary fear of the Devil, implanted in the blood, and the 
capitalists has become the modern Devil of their imagin- 
ation. 

The weakness of Socialism is the reasoning by analogy, 
which disregards the fundamental facts of evolution, and 
neglects to observe the increase in debt as the cause of the 
increasing slavery of laborers. 



106 The Standard Price op Cotton. 

Socialism is impossible because government ownership, 
under the plan proposed, would be an extension of the in- 
equality which is now apparent, and which has been 
caused by withdrawing the price of capital from the cir- 
culation of money, thus preventing wages from advancing 
as wealth advances. 

The further concentration of ownership, although under 
the control of the general government, would mean the 
further withdrawal of money from circulation, and it is 
immaterial who owns capital if labor is prevented from 
doing so. 

Land Reform. 

The other movement, becoming of world-wide import- 
ance because it recognizes a fundamental evil, is the land- 
reform movement, which expects to correct inequality in 
wealth by correcting the inequality arising from the own- 
ership of favorable locations, which it hails as the mother 
of crimes, because land is thereby said to be monopolized. 

The land-reform movement has its strength in the funda- 
mental proposition that land is a gift of God for the 
benefit of all mankind, and to own land has become the 
great sacrilege of modern times. 

The strength of this movement is found in the truth 
that land should be free in the sense that it should not 
have a cost price; and should not be treated as private 
property because it differs fundamentally from the things 
which may be rightfully owned; that the rights of prop- 
erty are conferred by labor and not by appropriating land. 



Remedies. 107 

Henry George, the great leader of the modern land-re- 
form movement, saw clearly the underlying truth, and 
stated : — that "the rise in the price of land was the cause 
of the persistence of poverty in the face of amazing ma- 
terial progress." 

But when Henry George sought an explanation of this 
truth, he was misled into believing that the old theories 
of political economy, and more particularly Rieardo's Law 
of Rent, supported his theory with the authority of estab- 
lished opinion, but in this he was mistaken and his ex- 
planation accordingly failed. 

To remedy the supposed evils resulting from the monop- 
oly of location, the single tax is proposed as the sole 
solution, whereby all differences in income, attributed to 
the intrinsic value of land, will be absorbed by taxation, 
and the advantage which one location has over another is 
expected to be destroyed by the burden of taxes each will 
be required to carry. 

Noting the fact that valuable locations in cities are not 
covered with suitable improvements, it is argued that to 
concentrate taxes solely upon land values will force the 
owner to make improvements equal to those now obtaining 
upon similar locations. 

This theory neglects the most important of all practical 
considerations, namely, that improvements cannot be made 
merely because taxes make it unprofitable to hold land; 
much property is sold on account of the burden of tax- 
ation without such sale being followed by improvement, 



108 The Standard Price of Cotton. 

for fear the improvement without a market would add to 
the burden instead of relieving it. 

The weakness of land-value taxes as a solution of social 
problems is found in its theory of intrinsic value, by hold- 
ing that wealth has no other limit than land and labor, 
and all that labor requires in order to create unlimited 
wealth is to have access to land ; the theory utterly ignores 
all laws of progress which define limits to wealth in every 
direction. 

It is the heighth of folly to contend that land and labor 
alone, regardless of laws of development, and of the circu- 
lation of money, is the sole requirement of production and 
of the increase in wealth. 

That single tax is an admirable tax reform is true, but 
it is not a great reform, because its usefulness will be 
limited to correcting the inequality in wealth based upon 
inequality in taxation, and it may not touch other causes 
of distress. 

Railroad building is also a blessing to society, and 
might, as well as single tax, be argued to be a solution for 
the wrongs of our times, because it forces land into use 
that otherwise is not valuable, and creates an enormous 
demand for labor not alone during periods of construc- 
tion, but demands an equal supply of labor in its perma- 
nent operation and maintenance. 

Taxation of land values as a social reform is similar to 
advocating road and railroad building merely because 
land will thereby be improved and labor will be given em- 



Remedies. 109 

ployment, without taking into consideration the fact of 
whether the new improvements may not become a burden 
instead of a blessing by increasing vacant houses and 
useless railroads. 

The single-tax scheme, as it is being promoted, ignores 
the fact that within a single generation in this country 
tremendous areas of new lands have been put to every in- 
dustrial use, causing the greatest activity of labor and the 
greatest increase of wealth in the history of mankind. 

This wonderful expansion in demand for labor and 
wonderful increase of improvements upon land, did not 
solve a labor problem anywhere, but, on the contrary, re- 
sulted in making injustice more acute by demonstrating 
that instead of labor gaining by the greater quantity of 
capital it produced, it lost by receiving a less share as 
wages in proportion to the increase of wealth. 

The correct remedy must combine the fundamental truth 
of Socialism regarding the right of labor to have capi- 
tal, with the fundamental truth of land reform regarding 
the right of humanity to have land without cost. 

It is now too late to return to a situation which might 
have been in existence had private property in land never 
become a social institution; it is not land owning itself 
that has blocked progress, but the fact that good locations 
being limited caused a gift of capital to become a gift of 
land. The reason it is now too late to reverse property 
laws is because the locations that are necessary to society 
are covered with capital, the ownership of which is ex- 
pected to remain private property. 



110 The Standard Price of Cotton. 

The true solution must work backward by accepting the 
present situation and by untangling the present injustice 
and bring about a new adjustment as rapidly as natural 
laws, freed from legislative interference, may right the 
wrongs of labor ; there is no Gordian Knot to be cut by a 
Reformer, no Man on Horseback to mount upon a throne. 

Opportunity is most ably illustrated by Henry George 
as consisting of a fertile field where labor, a great bull, is 
tethered by a rope to a stake at a central location, and 
grazing in the long grass the bull has wound the long rope 
of opportunity closely to the stake, and stands a close 
prisoner, bellowing for relief in a field of abundance, un- 
able to move on account of the stake around which his 
rope of opportunity has wound itself. 

The stake might have offered no obstruction, and the 
rope need never to have twisted, a turn at a time, and 
narrowed the circle of opportunity to graze in the rich 
grass. 

The field is the field of industry ; the rope is the length 
of Credit, which circulates around central locations where 
the stake of Capital has been driven, and it is only when 
the stake contracts the circulation of credit, one revolution 
at a time by the growth of rings of debt, that oppor- 
tunity disappears, first by an insensible difference at the 
circumference, to become a total loss at the stake, with 
labor a close prisoner of debt, unable to free itself, and to 
bellow for help in the sight of plenty. Who shall drive 
the Bull the way to unwind the rope? is the question 
Henry George proposed. 



Remedies. Ill 

Debts wound around capital at central locations can 
never be unwound by being paid, because the length of 
rope required to pay them is tightly gathered in a small 
and compact ownership of money, but debts may be 
abolished by simply unwinding credit; each turn of the 
rope taken from the stake lengthens credit and expands 
the field of opportunity; each turn in the right direction 
makes progress in that direction a simple matter of mov- 
ing around the stake. 

The way to unwind the rope is to change debts into 
credit, by making capital payable in money on demand, 
and protect the payment by a reserve the same as bank 
obligations are protected by a reserve and are payable in 
money on demand. 

Government and municipal debts, as the chief offenders, 
should be the first to change and the first to unwind the 
most important supply of credit, and they would establish 
a standard rate of interest which would govern all other 
securities, on account of the unlimited reserve at the dis- 
posal of the government. 

The reserve requirements, for a hundred billion dollars 
or more of capital, are now in existence as secondary bank 
deposits of twelve billion dollars, and it is only necessary 
to allow such deposits to redistribute themselves to cor- 
porations and furnish the reserves required, so as to make 
every obligation of capital payable in cash on demand. 

With this simple plan in operation, banking reform of 
the right kind, would become inevitable, and credit would 



112 The Standard Price of Cotton. 

be sold as commodities are sold, one price to each and 
every customer, without discrimination or favor. 

The market price of credit should be publicly proclaimed 
by the rate of discount, and no stringency should be 
allowed to interfere with the equal right of any person to 
buy the supply with the same kind of security. 

When the supply of credit runs low the discount rate 
would be advanced, and, as every loan was a demand loan, 
each would pay the higher rate or liquidate and allow 
another to buy the credit who is willing to pay the higher 
price. 

Every loan being a demand loan, the rate of discount 
would regulate the supply of credit to the demand, and 
this rate need not change arbitrarily, but should change in 
fixed units for stated periods. 

The Automatic Increase op Cash. 

In calling to mind the fact that from 1850 to 1910, the 
volume of cash in the United States increased from three 
hundred million to three thousand million dollars, and 
was the controlling power in an increase of wealth from 
about eleven billion dollars to about one hundred and ten 
billion, the fact demonstrates that the increase in cash 
should not depend upon accidental or legislative inflation. 

The increase of cash money comes now, as in times past 
from the increased production of gold and from issues of 
paper money consisting almost exclusively of bank notes 
made payable in gold coin. 



Remedies. 113 

This system is digging a grave for the finances of the 
world by a progressive and dangerous inflation, which has 
no natural limits, and which will bring world-wide dis- 
aster unless it is corrected in time. 

When the demands of the world for cash exceeded the 
supply of gold, a substitute in the form of primary credit 
money was provided by issuing paper money payable in 
gold. 

While the demands for gold in commerce were acute, 
this volume of paper was held within narrow limits and 
could only supply the local demands which surrounded 
the points of issue, and which were in reach of the gold 
into which the bank notes were convertible. 

But the circulation of paper gradually extended as it 
acquired more of the functions of cash and as it did not 
call upon gold to redeem it. 

The fact that paper was redeemable in gold coin, and 
that its supply was held in check by the amount of paper 
which was necessarily so redeemed, kept down the supply 
of paper and held the value of money to the standard 
price of gold. 

The relation between the quantity of gold and the quan- 
tity of paper which must be redeemed in gold, is con- 
stantly changing by expanding the paper circulation. 

Although the production of gold has greatly increased, 
yet the fact that paper is a better money than gold, when 
it need not be redeemed, operates all the time to drive gold 
out of circulation, to be replaced with paper money. 



114 The Standard Price of Cotton. 

Practically all the gold of the world for currency pur- 
poses is now out of circulation, and is held as reserve to 
secure the redemption of paper that is seldom offered for 
gold. 

The continued increase in the supply of gold does not 
get into coinage except as paper money, but accumulates 
as reserve to be used to redeem paper that never asks to 
be redeemed. 

This inflation of primary paper develops its secondary 
money payable in gold presumably, but really payable in 
other paper which is payable in gold, and thus the world 
is experiencing the most dangerous expansion of money 
in its history, whereby gold is being used as a reserve to 
convert primary and secondary credits into cash and 
allow other credits to be cancelled with debt, and to in- 
flate primary prices beyond all ability of wages to sustain 
them. 

National bank notes in this country represent this sec- 
ondary cash, and the volume is about equal in value to the 
gold held by the government, but which is also in circu- 
lation as gold certificates. 

This system is bound to destroy itself if it continues, 
and it should give way to an automatic regulation where- 
by the volume of cash will be governed by the volume of 
primary and secondary credit redeemable in cash. 

The supply of cash should be furnished by a volume 
of primary paper money superseding all other forms 
of money, and be made payable in government securities 



Remedies. 113 

This system is digging a grave for the finances of the 
world by a progressive and dangerous inflation, which has 
no natural limits, and which will bring world-wide dis- 
aster unless it is corrected in time. 

When the demands of the world for cash exceeded the 
supply of gold, a substitute in the form of primary credit 
money was provided by issuing paper money payable in 
gold. 

While the demands for gold in commerce were acute, 
this volume of paper was held within narrow limits and 
could only supply the local demands which surrounded 
the points of issue, and which were in reach of the gold 
into which the bank notes were convertible. 

But the circulation of paper gradually extended as it 
acquired more of the functions of cash and as it did not 
call upon gold to redeem it. 

The fact that paper was redeemable in gold coin, and 
that its supply was held in check by the amount of paper 
which was necessarily so redeemed, kept down the supply 
of paper and held the value of money to the standard* 
price of gold. 

The relation between the quantity of gold and the quan- 
tity of paper which must be redeemed in gold, is con- 
stantly changing by expanding the paper circulation. 

Although the production of gold has greatly increased, 
yet the fact that paper is a better money than gold, when 
it need not be redeemed, operates all the time to drive gold 
out of circulation, to be replaced with paper money. 



114 The Standard Price of Cotton. 

Practically all the gold of the world for currency pur- 
poses is now out of circulation, and is held as reserve to 
secure the redemption of paper that is seldom offered for 
gold. 

The continued increase in the supply of gold does not 
get into coinage except as paper money, but accumulates 
as reserve to be used to redeem paper that never asks to 
be redeemed. 

This inflation of primary paper develops its secondary 
money payable in gold presumably, but really payable in 
other paper which is payable in gold, and thus the world 
is experiencing the most dangerous expansion of money 
in its history, whereby gold is being used as a reserve to 
convert primary and secondary credits into cash and 
allow other credits to be cancelled with debt, and to in- 
flate primary prices beyond all ability of wages to sustain 
them. 

National bank notes in this country represent this sec- 
ondary cash, and the volume is about equal in value to the 
gold held by the government, but which is also in circu- 
lation as gold certificates. 

This system is bound to destroy itself if it continues, 
and it should give way to an automatic regulation where- 
by the volume of cash will be governed by the volume of 
primary and secondary credit redeemable in cash. 

The supply of cash should be furnished by a volume 
of primary paper money superseding all other forms 
of money, and be made payable in government securities 



Remedies. 115 

on demand, and so regulated that the supply of cash 
can be increased by paying off government securities 
with new money, and the government issue its securities 
by taking up redundant supplies of money and cancelling 
them. 

The general government would print new money to pay 
its bonds and have its bonds on the market all the time, 
and with the bonds take up redundant supplies of money, 
and when a balance was secured the outstanding bonds 
would always supply the market with the required volume 
of cash. 

Baltimore, Md., February 15, 1912. 



Remedies. 115 

on demand, and so regulated that the supply of cash 
can be increased by paying off government securities 
with new money, and the government issue its securities 
by taking up redundant supplies of money and cancelling 
them. 

The general government would print new money to pay 
its bonds and have its bonds on the market all the time, 
and with the bonds take up redundant supplies of money, 
and when a balance was secured the outstanding bonds 
would always supply the market with the required volume 
of cash. 

Baltimore, Md., February 15, 1912. 



MAR 9 1912 



LIBRARY OF CONGRESS 

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